Form 5472 Penalties: How to Avoid the $25,000 Fine

Penalties

January 5, 2025

6 min read

Written by FODL Team

The IRS takes Form 5472 compliance seriously. The penalty for failure to file — or filing an incomplete or inaccurate form — starts at $25,000 per form.

This guide explains the penalty structure and how to protect yourself.

The $25,000 Penalty

$25,000 per Form 5472, per year

This is not a typo. The penalty is twenty-five thousand dollars for each Form 5472 that is not filed correctly and on time.

What Triggers the Penalty?

The penalty can be assessed for any of the following:

Failure to file Form 5472

Not submitting the form at all

Late filing

Submitting after the deadline without a valid extension

Incomplete information

Missing required fields or sections

Substantially incorrect information

Errors in transaction amounts or entity details

Failure to maintain records

Not keeping the required documentation

Additional Penalties for Continued Failure

If the IRS notifies you of a failure and you don't comply within 90 days, additional penalties apply:

+$25,000 for each 30-day period (or fraction thereof)

After the initial 90-day notice period, an additional $25,000 penalty is added for each 30-day period that passes without compliance.

This means penalties can quickly escalate to $50,000, $75,000, or more if non-compliance continues.

Why Are the Penalties So High?

The IRS views Form 5472 as a critical tool for monitoring cross-border related-party transactions. The high penalty reflects:

• Importance of international tax transparency
• Difficulty of auditing foreign-owned entities
• Deterrent against transfer pricing abuse
• Enforcement of information reporting requirements

Unlike income tax penalties that are percentage-based, Form 5472 penalties are flat amounts — making them especially impactful for small LLCs.

How to Avoid Form 5472 Penalties

1. File on Time

Submit by April 15 (for calendar-year LLCs) or file Form 7004 for an automatic 6-month extension. Mark the deadline on your calendar.

2. File Completely

Complete all required sections of Form 5472 and the Pro Forma 1120. Don't leave fields blank unless they genuinely don't apply.

3. File Accurately

Double-check all information: EIN, addresses, transaction amounts. Errors can trigger penalties even if you filed on time.

4. Keep Records

Maintain documentation of all transactions between you and your LLC. The IRS requires records to be kept for as long as they may be relevant.

5. File Even If Zero Activity

Having no transactions doesn't exempt you from filing. Submit Form 5472 with $0 reported — this is fully compliant.

What If You're Already Late?

If you've missed past filing deadlines, take action immediately:

File as soon as possible

Late filing is better than no filing

Consider reasonable cause relief

The IRS may waive penalties if you had reasonable cause for late filing

Consult a tax professional

Complex situations may benefit from professional guidance

Respond promptly to IRS notices

If you receive a penalty notice, don't ignore it

Reasonable Cause Relief

The IRS may waive penalties if you can demonstrate "reasonable cause" for the failure. This typically requires showing that:

You exercised ordinary business care and prudence

The failure was due to circumstances beyond your control

You acted in good faith

You corrected the issue as soon as possible

Examples of reasonable cause: serious illness, natural disaster, reliance on incorrect professional advice, or genuine unawareness of the filing requirement (for first-time filers).

Summary

The best way to avoid Form 5472 penalties:

Know the deadline (April 15 or extended)

File every year, even with zero activity

Complete all required fields accurately

Keep records of all related-party transactions

Act quickly if you've missed past filings

$25,000 is a steep price for a missed form. Stay compliant and file on time.