IRS Notice CP162: What It Means for Your Foreign-Owned Multi-Member LLC
- Arik Rozen (CPA, MBA)
- 3 hours ago
- 8 min read
By Arik Rozen, CPA, MBA | Virginia License No. 025991 | September 2026
Arik Rozen, CPA, MBAHead of Tax Filing, Form5472.online
QUICK SUMMARY
What CP162 is: An IRS penalty notice for a late, incomplete, or improperly filed partnership return (Form 1065). It covers multi-member LLCs taxed as partnerships. It is not a Form 5472 notice.
The penalty amount: $255 per partner per month for up to 12 months for the 2025 tax year (2026 filing season), under IRC Section 6698. A two-member LLC that files 6 months late owes $3,060.
Two fastest relief paths: Revenue Procedure 84-35 (automatic abatement for small partnerships) and First-Time Abatement — both available without a formal Reasonable Cause statement if you qualify.
What to do right now: File the missing or corrected Form 1065 immediately. Do not pay the penalty before checking whether you qualify for automatic abatement.
IN THIS GUIDE
If you own a foreign-owned U.S. multi-member LLC and have received IRS Notice CP162, you have a penalty assessment for a late, incomplete, or improperly filed partnership return. This guide explains exactly what the notice means, how the penalty is calculated, and the fastest paths to resolving it, including two abatement options that do not require a formal Reasonable Cause statement.
IRS NOTICE EXPLAINED
1. What IRS Notice CP162 Is and Who Receives It
IRS Notice CP162 is a penalty assessment letter sent to partnerships, S corporations, and Real Estate Mortgage Investment Conduits (REMICs) for one of three reasons: filing a required return late, filing a return that is missing required information, or failing to file electronically when the IRS requires it for entities with more than 100 partners.
A multi-member LLC that is taxed as a partnership files Form 1065 (U.S. Return of Partnership Income) every year. If that return is filed after the deadline, filed incomplete, or not filed at all, the IRS assesses a penalty and sends CP162. The notice states the tax period, the reason for the penalty, the amount assessed, and a payment deadline.
Important distinction: CP162 is a partnership and S corporation notice. It is not the notice the IRS sends for a missing or late Form 5472. If you own a foreign-owned single-member LLC and have a Form 5472 issue, the IRS uses a different notice mechanism under IRC Section 6038A. See the final section of this guide for the Form 5472 connection.
Sources: IRS: Understanding Your CP162 Notice; IRS: Understanding Your CP162A Notice; IRS Instructions for Form 1065
PENALTY CALCULATION
2. How the CP162 Penalty Is Calculated
The penalty under IRC Section 6698 is calculated per partner, per month, for each month or partial month the return is late, up to a maximum of 12 months. The dollar amount per partner is adjusted for inflation each year.
For the 2025 tax year (returns due in 2026), the rate is $255 per partner per month, set by Revenue Procedure 2024-40.
PENALTY EXAMPLES: 2025 TAX YEAR (FILED IN 2026)
2-member LLC, 3 months late$255 x 2 x 3 = $1,530
2-member LLC, 6 months late$255 x 2 x 6 = $3,060
3-member LLC, 6 months late$255 x 3 x 6 = $4,590
5-member LLC, 12 months late (maximum)$255 x 5 x 12 = $15,300
The penalty applies even when the partnership had zero income, zero tax liability, and zero U.S. business activity during the year. The obligation to file Form 1065 exists regardless of income.
Sources: IRC Section 6698; Revenue Procedure 2024-40; IRS Instructions for Form 1065
FOREIGN LLC SPECIFIC
3. What CP162 Means for a Foreign-Owned Multi-Member LLC Specifically
Foreign-owned multi-member LLCs face the same CP162 penalty as domestic partnerships, with one additional layer of complexity: they are often unaware of the Form 1065 filing requirement entirely. The most common scenario is a foreign owner who formed a two-member U.S. LLC with a partner, assumed it operated like a single-member LLC, and never filed Form 1065 or issued Schedule K-1s.
There are also two additional filing requirements that multi-member LLCs with foreign partners may have missed alongside Form 1065:
Schedule K-2 and K-3
Multi-member LLCs with foreign partners are generally required to file Schedule K-2 (Partners' Distributive Share Items of International Tax Relevance) and issue Schedule K-3 to each partner. Failure to file these can result in additional penalties under IRC Section 6722 of $330 per missing K-3, with no cap on the number of partners.
The Form 5472 Question
Multi-member LLCs taxed as partnerships do not file Form 5472. That is the form for single-member LLCs and corporations. If your entity is a multi-member LLC filing Form 1065, your international reporting obligation is through Schedule K-2 and K-3, not Form 5472. Confusing the two is one of the most common mistakes foreign LLC owners make.
ARIK'S NOTE
In my practice, the most common CP162 case involving foreign owners is a two-member LLC where one or both members are non-U.S. residents. They formed the LLC, opened a bank account, and either had no transactions or minimal activity. They assumed nothing needed to be filed. The IRS sees a missing Form 1065 and assesses the penalty automatically. The good news is that this exact scenario, a small partnership with few partners and no income, is also the easiest to abate. Revenue Procedure 84-35 was written for it.
RESPONSE STEPS
4. Step-by-Step: How to Respond to CP162
1
Read the notice carefully and confirm the tax year and penalty reason
The notice states the specific tax period, the reason (late filing, incomplete return, or failure to e-file), and the amount assessed. Confirm which reason applies to your situation before taking any action. The response strategy differs depending on the reason.
2
Do not pay the penalty before checking abatement eligibility
Paying the penalty does not prevent you from requesting abatement, but it changes the process from prevention to refund. Check whether you qualify for Revenue Procedure 84-35 or First-Time Abatement before sending a payment. Both can eliminate the penalty without a formal Reasonable Cause statement.
3
File the missing or corrected Form 1065 immediately
If you have not filed Form 1065 for the year on the notice, file it now. The penalty continues to accrue on an unfiled return. Filing the return stops the late-filing clock and is a prerequisite for any abatement request. Include all required Schedule K-1s and, if applicable, Schedule K-2 and K-3.
4
Respond to the notice by the deadline shown
The notice includes a response deadline. If you are disputing the penalty or requesting abatement, respond in writing by that date. Send your response by certified mail with return receipt. Keep copies of everything.
5
Request penalty abatement using the appropriate method
See the next section for the three abatement paths. Choose the one that fits your situation. Include it with your response or as a separate written request to the IRS address on the notice.
PENALTY RELIEF
5. Three Relief Paths That Can Remove or Reduce the CP162 Penalty
Path 1: Revenue Procedure 84-35 (Automatic Relief for Small Partnerships)
This is the most powerful and most overlooked relief option for foreign-owned multi-member LLCs. Revenue Procedure 84-35 allows the IRS to presume reasonable cause exists for a partnership that meets all of the following conditions:
The partnership had 10 or fewer partners during the year
All partners are individuals (not entities) or estates of deceased individuals
Each partner's share of each partnership item is the same as their share of every other item
Each partner has timely filed their own U.S. individual tax return and reported their share of partnership items
Important nuance for foreign partners: The Revenue Procedure 84-35 requirement that each partner "timely filed" their own return creates complexity for non-U.S. resident partners who may not be required to file a U.S. individual return at all. If neither partner had U.S. income that required a personal return, this relief path may still be available, but the argument requires careful framing. Consult a CPA before relying on this path if your partners are non-U.S. residents.
Path 2: First-Time Abatement (FTA)
If your partnership has a clean compliance history, meaning no penalties in the three tax years before the year on the CP162 notice, you may qualify for First-Time Abatement under IRS Administrative Waiver policy. FTA does not require any explanation of why the return was late. It is a clean-history benefit.
Request FTA by calling the IRS number on the notice and asking for First-Time Abatement, or by submitting a written request. The IRS will verify your compliance history and, if you qualify, remove the penalty.
Path 3: Reasonable Cause Abatement
If you do not qualify for the two automatic paths above, you can still request penalty abatement by demonstrating Reasonable Cause: that you exercised ordinary business care and prudence but were unable to comply. Common grounds include reliance on incorrect professional advice, serious illness, records destroyed by events outside your control, or genuine unawareness of the filing requirement combined with prompt correction once discovered.
A Reasonable Cause request must be submitted in writing, explain the specific facts and circumstances, and demonstrate that compliance was genuinely not possible or that the failure was not willful neglect. A CPA-prepared statement significantly increases the probability of full abatement.
Sources: Revenue Procedure 84-35; IRS: First-Time Penalty Abatement; IRM 20.1.2.2 (Reasonable Cause)
ARIK'S NOTE
In my experience, the IRS is responsive to well-documented abatement requests for CP162 penalties on small foreign-owned partnerships. The combination of a small partnership, no prior penalties, and a foreign owner with no prior U.S. compliance history is one the IRS has seen thousands of times. Revenue Procedure 84-35 was designed for exactly this situation. The worst thing you can do is pay the penalty without checking whether you were entitled to automatic relief.
FORM 5472 CONNECTION
6. The Form 5472 Connection: What Multi-Member LLC Owners Also Need to Know
If you own a foreign-owned multi-member LLC and have received CP162 for a missing Form 1065, your Form 5472 obligation is likely not the issue. Multi-member LLCs taxed as partnerships file Form 1065, not Form 5472. Form 5472 applies to single-member LLCs (disregarded entities) and corporations.
However, if you have ever had a single-member LLC structure in addition to the multi-member entity, or if the ownership structure of the multi-member LLC changed during the year in a way that created a single-owner period, a separate Form 5472 question may exist for the same period.
If you converted your single-member LLC to a multi-member LLC mid-year, the portion of the year during which it operated as a single-member disregarded entity may still require Form 5472 for that tax year.
If you have received a penalty notice specifically for Form 5472 — not CP162, but a separate IRS notice referencing a $25,000 penalty under IRC Section 6038A — that is a different situation. Read our separate guide: Received an IRS Penalty Notice for Form 5472? What to Do Immediately.
Need help filing a late Form 1065 or responding to CP162?CPA-prepared Form 1065 and K-1 filing. Penalty abatement statement included where applicable.
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.
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