Received an IRS Penalty Notice for Form 5472? What to Do Immediately
- Arik Rozen (CPA, MBA)
- 3 hours ago
- 8 min read
By Arik Rozen, CPA, MBA | Virginia License No. 025991 | September 2026
Arik Rozen, CPA, MBA Head of Tax Filing, Form5472.online
TIME-SENSITIVE
The IRS penalty notice for Form 5472 starts a 90-day clock. If you do not file the missing form and respond within 90 days of the notice date, an additional $25,000 penalty begins accruing every 30 days with no cap. Read this guide before doing anything else.
QUICK SUMMARY
What you received: An IRS notice under IRC Section 6038A(d) assessing a $25,000 penalty for a missing, late, or substantially incomplete Form 5472.
The 90-day clock: From the date of the IRS notice, you have 90 days before continuation penalties of $25,000 per 30-day period begin. There is no statutory maximum.
The abatement rate: The IRS Taxpayer Advocate has documented that the IRS abates between 71% and 88% of systemically assessed Section 6038A penalties when a proper Reasonable Cause statement is filed. Filing first, before the IRS contacts you, produces the highest success rate.
The two things to do right now: File the missing Form 5472 and pro forma Form 1120 immediately to stop the clock. Then prepare and submit a Reasonable Cause statement to request full penalty abatement.
IN THIS GUIDE
Receiving an IRS penalty notice for Form 5472 is alarming. The $25,000 penalty is real, the continuation penalties are real, and the 90-day clock starts from the date printed on the notice. This guide explains exactly what the notice means, how the penalty escalates if you do not act, and the documented path to full abatement that the IRS grants in the majority of qualifying cases.
THE NOTICE EXPLAINED
1. What the IRS Penalty Notice for Form 5472 Actually Is
The IRS assesses Form 5472 penalties under IRC Section 6038A(d). When the IRS determines that a required Form 5472 was not filed, was filed substantially incomplete, or that required records were not maintained, it issues a formal notice to the reporting entity demanding the missing filing and assessing the $25,000 penalty.
Unlike some IRS penalties that arrive only after an audit, the Form 5472 penalty is assessed systemically. The IRS matches filed corporate returns against expected Form 5472 attachments. When a foreign-owned entity's return is missing the attachment, or when a disregarded entity's pro forma Form 1120 is missing entirely, the IRS generates the penalty notice automatically.
What the IRS notice tells you: The notice identifies the tax year at issue, the specific failure (failure to file, substantially incomplete filing, or failure to maintain records), the penalty amount assessed ($25,000 per form per year), the 90-day window to cure the failure before continuation penalties begin, and the IRS contact information for your response.
Sources: IRC Section 6038A(d); IRS Instructions for Form 5472 (December 2024); The Tax Adviser: Penalty Relief for Forms 5471, 5472, and 8865; IRS Taxpayer Advocate Service Annual Report
THE 90-DAY CLOCK
2. The 90-Day Clock and How Continuation Penalties Work
This is the most critical fact in this guide. The initial $25,000 penalty is the starting point, not the ceiling. Once the IRS mails the notice, a 90-day window opens. If the failure is not corrected within 90 days of the notice date, continuation penalties begin.
Day 0IRS mails the penalty notice. $25,000 penalty assessed.
Day 1-90The cure window. File the missing Form 5472 and respond to the notice. No additional penalties accrue during this period.
Day 91Additional $25,000 penalty begins. First continuation penalty period starts.
Day 121Additional $25,000 penalty. Second continuation period. Total: $75,000.
Day 151+Penalties continue at $25,000 per 30-day period. No statutory maximum cap.
No statutory maximum. Unlike some IRS penalties that cap at a fixed amount, the Form 5472 continuation penalty under IRC Section 6038A(d)(2) has no ceiling. A single missed Form 5472 can escalate from $25,000 to $100,000 or more within six months of the notice date if the failure is not corrected.
Source: IRC Section 6038A(d)(1) and (d)(2); IRS Instructions for Form 5472
IMMEDIATE ACTIONS
3. The Five Things to Do Immediately
1
Note the exact date printed on the notice — not the date you received it
The 90-day clock runs from the date the IRS mailed the notice, which is printed on the document. This date may be days or weeks before you actually received it. Calculate your actual deadline immediately: notice date plus 90 days.
2
Do not ignore the notice or wait to see what happens next
Every day of inaction after day 90 adds $833 per day in continuation penalties (calculated as $25,000 per 30-day period). The IRS does not send reminders. The continuation penalties accrue automatically.
3
Engage a CPA before filing the late Form 5472
Do not file the late form alone. A correctly prepared late filing attached to a properly structured Reasonable Cause statement filed simultaneously gives you the highest probability of full abatement. A bare late filing without a Reasonable Cause statement leaves the $25,000 assessment standing and requires a separate follow-up abatement request.
4
File the missing Form 5472 and pro forma Form 1120 to stop the clock
The continuation penalty clock stops when you file the required form. Filing the late return is the single most important action. For a foreign-owned single-member LLC (disregarded entity), this means preparing and mailing Form 5472 attached to a pro forma Form 1120 to the IRS Ogden, UT address by certified mail.
5
Submit a Reasonable Cause statement with or immediately after the filing
The Reasonable Cause statement is the document that requests the IRS waive the $25,000 initial penalty. It must explain the specific facts and circumstances of why the form was not filed on time, demonstrate ordinary business care and prudence, and reference Treasury Regulation Section 1.6038A-4. A CPA-prepared statement is significantly more effective than a self-prepared one.
REASONABLE CAUSE
4. Reasonable Cause Abatement: What It Is and Who Qualifies
Reasonable Cause abatement is the formal IRS process for requesting that an assessed penalty be waived because the failure to file was not due to willful neglect, and the taxpayer exercised ordinary business care and prudence.
For Form 5472, Treasury Regulation Section 1.6038A-4(b)(2)(ii) provides that Reasonable Cause should be applied liberally when a small corporation had no knowledge of the IRC Section 6038A requirements, has limited presence in and contact with the United States, promptly and fully complies with all requests to file Form 5472 when the requirement becomes known, and promptly furnishes required books and records.
Common qualifying grounds for foreign LLC owners
The following circumstances, properly documented, commonly support a successful Reasonable Cause request for Form 5472 penalties:
No prior awareness of the Form 5472 filing requirement for a foreign-owned disregarded entity
Reliance on a prior accountant or formation agent who did not advise of the requirement
Incorrect professional advice that no filing was required for an LLC with no income
Unawareness that the LLC formation itself, or a capital contribution, constituted a reportable transaction
Prompt action to file and come into compliance once the requirement was discovered
Limited U.S. presence and no pattern of noncompliance
What does not qualify as Reasonable Cause: A general statement that you "did not know" without specific facts explaining how that lack of knowledge arose and why it was reasonable. The IRS requires the statement to be specific, factual, and tied to your actual circumstances.
Sources: Treasury Regulation Section 1.6038A-4(b)(2)(ii); The Tax Adviser: Penalty Relief for International Information Returns; IRM 20.1.1.3 (Reasonable Cause)
ABATEMENT RATE
5. The IRS Abatement Rate for Form 5472 Penalties
71-88%The IRS Taxpayer Advocate Service documented that the IRS abates between 71% and 88% of systemically assessed Section 6038A penalties when a proper abatement request is filed. This is the abatement rate for the same type of penalty shown on your notice.
This figure comes from the IRS Taxpayer Advocate Service's Annual Report to Congress, which analyzed Section 6038A penalty assessments and abatements. The high abatement rate reflects the IRS's own recognition that many Form 5472 penalties arise from genuine unawareness of an obligation that was significantly expanded in 2017, not from willful noncompliance.
The abatement rate is highest when the request is filed before the IRS initiates an audit or makes contact beyond the initial penalty notice, and when the taxpayer has come into full compliance by filing all required forms at the time of the request.
ARIK'S NOTE
The 71 to 88 percent abatement rate is not a guarantee, but it reflects something real: the IRS knows this penalty falls disproportionately on foreign LLC owners who had no meaningful notice of a filing obligation that did not exist before 2017. In every case I have handled, the quality of the Reasonable Cause statement is the single biggest variable in the outcome. A generic letter saying "I didn't know" is not a Reasonable Cause statement. A specific, factual account of how the obligation was unknown, why that was reasonable given your circumstances, and what you did immediately once you discovered it, gives the IRS a clear basis to approve abatement. That is what we prepare for every late filing client.
WHAT NOT TO DO
6. What Not to Do When You Receive This Notice
Do not file the late Form 5472 without a Reasonable Cause statement
A bare late filing without an attached or simultaneous Reasonable Cause request leaves the $25,000 penalty standing. The IRS processes the filing and the penalty as separate events. Filing the form is necessary to stop the continuation clock, but it does not automatically remove the initial penalty.
Do not pay the penalty without requesting abatement first
Paying the penalty does not prevent you from requesting abatement, but it changes the process: instead of preventing the penalty, you are now requesting a refund of a payment already made. That is a longer and administratively more complex process. Check abatement eligibility before paying.
Do not assume a prior year CPA filing means you are compliant for all years
The IRS assesses the penalty per form per year. If you used a CPA for 2024 but not 2023 or 2022, each missing year is a separate $25,000 penalty. Address all open years in a single coordinated engagement rather than catching up one year at a time.
Do not delay because the penalty seems too large to fix
The penalty grows every 30 days after the 90-day window closes. The correct response to a $25,000 notice is immediate action, not delay. The IRS abatement rate for properly presented cases is documented at 71 to 88 percent. The penalty is more fixable than it appears, but only if you act within the cure window.
Received an IRS penalty notice for Form 5472?We file the missing return and prepare the Reasonable Cause statement. CPA-prepared. $947 total for one missed year (single-member LLC).
About the author. Arik Rozen, CPA, MBA, is Head of Tax Filing at Form5472.online. Virginia CPA License No. 025991, verified at dhp.virginia.gov. This guide is for informational purposes only and is not legal or tax advice specific to your situation. The 71-88% abatement rate cited is sourced from the IRS Taxpayer Advocate Service Annual Report and reflects historically documented outcomes for systemically assessed Section 6038A penalties. Past abatement rates do not guarantee results in any individual case.
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