What Happens If You Don't Close Your LLC Properly? The Real Consequences for Foreign Owners
Written by Arik Rozen, CPA, MBA | Virginia License #025991 | Updated 2026
Bottom line: If you stop using your U.S. LLC without formally closing it — no state dissolution, no final IRS filing, no EIN cancellation — the IRS and the state treat it as still active. That means filing obligations continue, penalties accumulate, and the $25,000-per-year Form 5472 penalty keeps running every year the account stays open. Abandoning an LLC is not the same as closing it.
What "Not Closing Properly" Means
Most foreign owners who don't close their LLC properly don't make an active decision to avoid it — they simply stop using the company, assume it closed on its own, or didn't know a formal process was required. Common scenarios:
The LLC was inactive for one or more years — no bank account, no transactions — but was never formally dissolved
The owner filed dissolution paperwork with the state but never filed a final Form 5472 or cancelled the EIN
The owner cancelled the registered agent but did not file Articles of Dissolution
The LLC was dissolved in the owner's home country but the U.S. entity was never touched
The owner was told by someone that "just letting it expire" was sufficient
None of these close the LLC. Each leaves the entity — and its IRS filing obligations — legally open.
The IRS Does Not Close Your LLC for You
The IRS does not monitor inactivity and does not administratively close LLCs. As long as the EIN account is open, the IRS expects annual compliance filings. For a foreign-owned single-member LLC, that means a Form 5472 and pro forma Form 1120 every year — regardless of whether the LLC had any income, any transactions, or any activity at all.
The IRS will not send a warning that filings are overdue. The penalties are assessed automatically, and the first notice many owners receive is a penalty letter years after they thought the company was closed.
The Penalties That Keep Running
Form 5472 — $25,000 per year, per LLC: Under IRC §6038A(d)(1), the IRS assesses a $25,000 penalty for each year a required Form 5472 is not filed. This penalty applies per tax year, not per late filing. If the LLC has been inactive for three years with no Form 5472 filed, the IRS can assess $75,000 in penalties — plus $25,000 for each additional year the account stays open.
Failure-to-file penalties on the pro forma Form 1120: The pro forma Form 1120 that accompanies Form 5472 for a foreign-owned single-member LLC is also subject to late-filing penalties if not filed timely.
State penalties and administrative dissolution: Most states charge annual fees and penalties for LLCs that don't file required reports. Some states will administratively dissolve the LLC — but administrative dissolution is not the same as a clean formal dissolution. It can leave the owner exposed to continued liability and does not resolve IRS obligations.
State Dissolution Does Not Close the IRS Account
This is one of the most common misunderstandings. Filing Articles of Dissolution with the Secretary of State closes the LLC at the state level. It does not notify the IRS, does not file the final Form 5472, and does not cancel the EIN. After state dissolution:
The EIN remains open
The IRS continues to expect annual filings
Form 5472 penalties continue to accrue
To close the IRS account, you must file a final Form 5472 and pro forma Form 1120 marked as final returns, then submit a written EIN cancellation request to the IRS and receive written confirmation of closure. Until that confirmation arrives, the account is open.
What Happens When the IRS Catches Up
The IRS has a multi-year window to assess penalties for unfiled international information returns. When it does, the process typically looks like this:
The IRS identifies the open EIN with no filings on record
A penalty notice is issued — often CP215 or a similar assessment notice
Penalties are assessed for each unfiled year, going back as far as the statute allows
The owner must respond within the notice deadline or the assessment becomes final
If the owner can demonstrate Reasonable Cause, penalties may be abated — but only if the response is timely and properly documented
Ignoring the notice does not make the penalties go away. It triggers collection action — including IRS liens and levies against U.S.-based assets.
Can the Penalties Be Removed?
Yes — in many cases. The IRS has a Reasonable Cause standard for penalty abatement that applies to Form 5472 penalties. If you can demonstrate that the failure to file was not due to willful neglect — that you had a legitimate reason for not knowing the filing was required, or that you took corrective action as soon as you became aware — the IRS may abate the penalties in full or in part.
Reasonable Cause abatement is not automatic. It requires a written statement, documentation, and in many cases professional representation. The stronger the factual record, the stronger the abatement position.
The correct sequence when catching up on a delinquent LLC:
File all missing Form 5472 returns and pro forma Form 1120s for every open year
File Articles of Dissolution with the state if not already done
Cancel the EIN in writing and obtain IRS written confirmation of closure
Submit a Reasonable Cause penalty abatement request with the late filings or in response to IRS notices
The Longer You Wait, the More It Costs
Every year the EIN stays open is another $25,000 in potential Form 5472 penalties. An LLC that has been inactive for five years without filing has $125,000 in potential penalty exposure before abatement. Abatement is available, but it is not guaranteed, and the IRS reviews each case on its facts. The earlier corrective action is taken, the stronger the abatement position — and the lower the total cost of getting into compliance.
Frequently Asked Questions
My LLC had no activity and no bank account. Do I still owe penalties?Yes. Form 5472 is required for foreign-owned single-member LLCs regardless of activity level. Zero transactions still requires a Form 5472 reporting zero reportable transactions. The IRS does not exempt inactive LLCs from the filing requirement.
I cancelled my registered agent. Does that close the LLC?No. Cancelling the registered agent removes the LLC's agent of record but does not dissolve the entity. Articles of Dissolution must be filed with the Secretary of State. Separately, the IRS account must be closed through final filings and EIN cancellation.
The state administratively dissolved my LLC. Am I done?No. Administrative dissolution by the state is a state-level action for failure to pay fees or file reports. It does not close the IRS account, does not file the final Form 5472, and does not cancel the EIN. IRS obligations continue.
I received a CP215 penalty notice. What do I do?Respond before the deadline stated in the notice. File all missing returns, prepare a Reasonable Cause statement, and submit a penalty abatement request. Do not ignore the notice — once the assessment becomes final, collection action follows.
Can I still get the penalties removed if it's been several years?In many cases, yes. The IRS applies the Reasonable Cause standard to Form 5472 penalties and has abated penalties on LLCs delinquent for multiple years when the facts support it. The key is acting before the IRS assessment becomes final and presenting a well-documented abatement request.
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Written and reviewed by Arik Rozen, CPA, MBA — Head of Tax Filing Department, Form5472.online | Virginia Board of Accountancy License #025991 | IRS PTIN Holder. This article is for informational purposes only. Verify all requirements against current IRS guidance applicable to your tax year.
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