Form 5472 Missed for Years: Rebuild the Books Before You File

I just found out the LLC never filed Form 5472 for several years: which years do I rebuild?

Rebuild every tax year in which the LLC had a reportable transaction with its owner or another related party. Each year is its own filing: a pro forma Form 1120 (a stripped-down return with only the LLC's name, address and two items) with Form 5472 attached (Form 5472 instructions; 26 CFR 1.6038A-2(a)(1)). A US LLC wholly owned by one foreign person is treated as a corporation for this one purpose (26 CFR 301.7701-2(c)(2)(vi)). An LLC formed in 2018 or later is covered from its first year; the table below covers older LLCs.

Test each year on its own. Money the owner puts in to form or fund the LLC, money the LLC pays the owner, and costs one side pays for the other are all transactions, so the LLC's first year can be a filing year. The regulation's own four-year example gives each year a reporting and record duty (26 CFR 1.6038A-2(b)(11), Example 1). A year with no reportable transaction needs no form (26 CFR 1.6038A-2(e)(1)), but loans are reported as balances at the start and end of the year, borrowings already in place included, so a year with an open owner loan and no new money can still need one (26 CFR 1.6038A-2(b)(3)(vii); instructions).

Build the years oldest first: a loan's ending balance in one year is the next year's beginning balance, and the form reports both (instructions). Ask whoever prepares the late forms (the preparer) which Form 5472 revision each year uses; the IRS lists every revision on its About Form 5472 page.

A case is simple when one owner holds the whole LLC, all money went through one US bank account, the owner's few transfers were in US dollars, every statement is in hand and no IRS letter has arrived. It needs a professional's judgment when several years are missing, nobody tracked the owner's transfers or kept platform and card statements, the owner's money and the LLC's are mixed, the owner paid LLC bills from a personal or foreign card, money came from abroad in other currencies, the LLC dealt with the owner's other companies or family, or an IRS letter has arrived. The last section links each of these.

If an IRS letter has arrived, check its deadline first: a failure that continues more than 90 days after the IRS mails notice of it draws a further penalty, and the rebuild does not pause that clock (instructions; see missed Form 5472 and penalties).

Gather first: the EIN letter, the formation papers, every statement from the first month (the owner's included), and the owner's name and address, any US tax number, home-country tax ID number, and countries of citizenship and tax residence (Form 5472, Part II).

Why rebuild each year carefully, and where does the Form 5472 penalty fit in?

The penalty falls on the LLC itself, as the reporting corporation: $25,000 for each tax year with a failure, applied once for each related party in that year. For a tax year that began in 2017, the earliest this rule reaches, it is $10,000 (IRM 20.1.9). It covers failing to keep the required records as well as failing to file, and a substantially incomplete Form 5472 counts as not filed (26 CFR 1.6038A-4(a); instructions). The sources do not define "substantially", so leaving out a related party or a type of transaction risks that treatment. A further penalty can start if a failure continues after an IRS notice.

Filing late does not by itself end the matter: the IRS says penalties may be assessed under its usual procedures when a delinquent information return is filed (IRS: delinquent international information returns). Amounts after a notice, penalty abatement, the reasonable cause statement, a CP215 notice and how far back the IRS can look are in missed Form 5472 and penalties.

What goes on Form 5472, and what belongs only in the books?

Form 5472 reports dealings between the LLC and a related party (Form 5472; instructions; 26 CFR 1.6038A-2(b)(3) and (4)). Sales to customers, purchases from vendors and the rest of the LLC's ordinary activity stay in the books only.

The books also feed Part I, which asks for total assets and the total value of foreign related-party transactions (instructions). Keep a year-end balance and yearly totals for each rebuilt year, not only a list of transfers. The instructions take total assets from Form 1120 item D, which a pro forma Form 1120 does not otherwise require, and do not say how an LLC fills it, so the preparer confirms.

If an actual amount in a transaction or series of transactions with a foreign related party does not exceed $50,000, Part IV may show it as "$50,000 or less" (instructions; 26 CFR 1.6038A-2(b)(9)). That changes only what is printed, so the log keeps every entry. The instructions do not say how to group transactions for that test or mention the shortcut for Part V, so list the actual amount of each contribution and distribution. Which transfers count is in records for a foreign-owned LLC.

Where do I find the data for years nobody tracked?

In statements. The LLC's own bank account is the spine of the rebuild, and the owner's accounts, platform reports and invoices fill in the other side of each line. If the LLC never had its own account, the account that received its money becomes the spine: treat each line as the LLC's or the owner's own, and expect a longer gap list (see fixing mixed business and personal funds). The regulation lists bank statements, ledgers, sales contracts and purchase invoices as original-entry records (26 CFR 1.6038A-3(c)(2)(i)), and records in the owner's hands may be obtained or compiled under the LLC's direction (26 CFR 1.6038A-3(b)(2)).

Ask each bank and platform for the full history now, because the rest of the rebuild waits on it. The regulation's safe harbor says basic accounting records that document the US tax effects of related-party transactions must be created and kept if they do not exist (26 CFR 1.6038A-3(c)(1)), so the rebuilt log is the kind of record the rule asks for. The IRS accepts any system that clearly shows income and expenses (IRS: recordkeeping). For method, see rebuilding books from bank statements.

How do I sort every line into money in, money out, loans and owner-paid costs?

Mark each line on the LLC's statements by who is on the other side, the owner or another related party versus an unrelated person. Then give every related-party line one type.

Form 5472 counts accrued payments and receipts, which the regulation requires of an accrual-method LLC (instructions; 26 CFR 1.6038A-2(b)(10)). Log each related-party invoice when billed and when paid, counted once: see bookkeeping for a foreign-owned US company.

Whether money is a contribution or a loan depends on the facts and on any paperwork, and it decides whether the amount lands in Part V or Part IV (instructions). Do not create papers now that claim to be older than they are. Where nothing shows what was intended, mark the line "undecided" and settle it with the preparer before filing. See owner contribution or loan to your LLC. If someone other than the owner sent or received the money (a relative, a friend, the owner's other company), log it under that person, marked "to confirm" for the related-party check below. The fields each log row should hold are in records for a foreign-owned LLC.

Log a bill the owner pays for the LLC from a personal or foreign card as money sent to the LLC on its behalf, because a transaction includes any transfer of money, however it is made and whether or not it is written down (26 CFR 1.482-1(i)(7)). The sources do not address owner-paid bills in terms, so the preparer confirms how Form 5472 reports it. For a card issued abroad, log the US-dollar amount the vendor billed and keep the card's converted charge and fee on the same entry; the preparer confirms which figure the form uses. A personal bill the LLC pays for the owner is a distribution (a loan to the owner if repayment is expected), not an LLC cost, because personal expenses are not deductible (26 USC 262(a)); split any charge that is partly personal. Platform payouts arrive net of fees, so record gross sales and fees separately and tie them to the deposit: see reconciling sales and payouts.

How do I record money that came from my foreign bank account?

Record each transfer in US dollars, with the foreign amount sent, the date, the fee and the rate beside it. Form 5472 amounts are stated in US dollars with a schedule of the exchange rates used (instructions; 26 CFR 1.6038A-2(c)).

Use one posted exchange-rate source for every foreign-currency entry in every year and name it on the schedule. The IRS has no official exchange rate and generally accepts any posted rate used consistently (IRS: exchange rates). For income and expenses on a US return, its general rule is the rate prevailing when the item is received, paid or accrued (IRS: foreign currency); the Form 5472 sources set no rate rule beyond the schedule.

When a bank or transfer service converts the money on the way, the sources do not say which figure Form 5472 expects when fees and the bank's own rate sit between the amount sent and the amount received, so the preparer confirms the choice before filing. Until then, log the dollars the LLC received, as its statement shows them, and keep the amount sent, the fee and the rate on the same entry. If the confirmation shows no rate, work out the rate the two amounts imply and label it "implied".

Exchange gains and losses inside the LLC's own books are in foreign currency accounts in US books.

What if some records are missing or only estimates exist?

Rebuild from the other side of each transaction first, estimate only what cannot be determined, and mark every estimate. A gap is a reason to keep digging, not to skip an entry.

1. Ask for the missing statement. Keep a dated list of each request and answer. Whether that supports penalty relief is in missed Form 5472 and penalties.
2. Use the matching record from the other side. A transfer between the owner and the LLC leaves a line on both sides, so a line missing from one statement can often be found on the other. A missing payout line can be found on the platform's report.
3. Estimate what is still unknown. Where actual amounts are not determinable, report a reasonable estimate: at least 75% and not more than 125% of the actual amount. An estimate outside that range can still be accepted if the facts are shown in a written statement made under penalties of perjury, and the IRS decides (instructions; 26 CFR 1.6038A-2(b)(3) and (8)). The regulation's estimate rule covers the transaction types it lists, which include contributions and distributions.
4. Write each gap in the log. Note the entry, what is missing, how the number was reached and who confirmed it.

Estimates do not replace records: failing to keep the required records draws the same $25,000 penalty as failing to file (instructions).

Do I file a separate Form 5472 for each related party?

Yes. The LLC files one Form 5472 for each related party with which it had a reportable transaction in the year (26 CFR 1.6038A-2(a)(1); instructions). The owner is the usual one, as a direct or indirect 25% foreign shareholder. A company the owner controls may be another, and so may the owner's spouse, brother or sister, parent or grandparent, or child or grandchild who lent money to the LLC or was paid by it; others can be related on the facts (instructions; 26 USC 267(b) and (c)(4)).

That changes the log in four ways:

• A related-party column. Total each party's lines separately, because each form carries only that party's transactions.
• One reference ID per foreign related party with no US tax ID, the owner included. It uses letters and numbers only, no spaces, up to 50 characters. The instructions require the same number every year for a given party and bar reusing a retired number for another, so assign it once and use it in every rebuilt year (instructions).
• A form count for each year. The form asks for the number of Forms 5472 filed for the year and their total value, so the log needs a count and a total per year (instructions).
• A missing party is a missing form. The penalty applies once for each related party in a year (26 CFR 1.6038A-4(a)(3)).

The instructions ask for a separate form for each related party, foreign or US, with a reportable transaction, and also say transactions with a US related party need not be specifically identified in Parts IV, V and VI (instructions). Keep US-party dealings in the log anyway, and ask the preparer how that party is handled.

How do I check each rebuilt year before filing?

A rebuilt year is ready when the log ties to the statements in each place below. Check the oldest year first, then carry its closing figures into the next.

A difference that cannot be cleared goes in the gap list with its amount and what is unknown.

Then file each year. The LLC cannot e-file Form 5472: each year's pro forma Form 1120 with Form 5472 goes by fax or mail to the IRS's dedicated address (in what a foreign-owned single-member LLC files), with "Foreign-owned U.S. DE" written across the top. Every statement attached must be in English (instructions; 26 CFR 1.6038A-2(c)). If a year's pro forma Form 1120 was already filed without Form 5472, the package differs: see missed Form 5472 and penalties. A recent year may not be late yet: it is generally due on the 15th day of the fourth month after year-end (Form 1120 instructions), and a Form 7004 filed by then extends it by six months (instructions).

What records must the LLC keep from now on?

Books that show every dealing with a related party, with the document behind each entry, kept as long as they may matter. The regulation asks for permanent, accurate and complete records that show the correct US tax treatment of related-party transactions (26 CFR 1.6038A-3(a)(1)).

• Log each owner transfer when it happens, with the confirmation or statement line, and reconcile the bank account each month: see the month-end close checklist.
• Keep platform reports, invoices for costs the owner pays personally, loan papers, the exchange-rate schedule, and one folder per tax year with the pro forma Form 1120, Form 5472 and proof it was sent.

Keep the records as long as they may be relevant, and at least until the time to assess and collect tax for the year the dealing affects has run out (26 CFR 1.6038A-3(g)). How long the IRS can look back at a year whose form was never filed is in missed Form 5472 and penalties. See how long to keep business records and, for who keeps the books going forward, bookkeeping for a foreign-owned US company.

What if the LLC has real profit, employees or more than one owner?

Form 5472 for this LLC covers dealings with related parties only, so profit, payroll and co-owners each raise a separate question.

• Real profit. The LLC has no income tax return filing requirement of its own, and its pro forma Form 1120 needs only its name, address and items B and E (instructions). Whether the owner owes US tax on the profit depends on the owner's facts: see when foreign owners owe US tax and a nonresident's return for business income. If the owner must report it, the rebuilt sales and cost lines are the starting point.
• Employees. An LLC with employees is treated as a corporation for employment taxes and files the payroll forms under its own name and EIN (26 CFR 301.7701-2(c)(2)(iv)). Payroll for unrelated employees is books work and a separate filing, outside Form 5472; pay to a related party, such as a relative, is still a dealing to log.
• More than one owner. This rule applies only when one foreign person owns all of the LLC (26 CFR 301.7701-2(c)(2)(vi)). See a company with a foreign co-owner and a closed multi-member LLC that never filed. If ownership changed over the years, the answer can differ by year.

Example

These examples are illustrative. Amounts are in US dollars unless stated, and each LLC uses the calendar year.

Three years, three logs

An owner who lives in China, and is not a US citizen or resident, owns all of a US LLC formed in year 1. Over three years the owner wires US$40,000 in, takes out US$12,000 and pays US$3,000 of web bills on a personal card, and treats the wires and bills as contributions (as loans they would move to Part IV, still reported).

Each year gets its own pro forma Form 1120 and Form 5472, built oldest first, and its own Part V statement listing that year's wires, web bill and distribution with dates and proof. The running total checks the owner ledger; it is not a line on the form. If none of the three years was filed, each can carry its own penalty: with the owner as the only related party, three missed years mean three initial penalties, not one.

Money from a Canadian bank account

An owner who lives in Canada, and is not a US citizen or resident, moves C$50,000 to the LLC's US account in four transfers, all as contributions with no loan terms. After the transfer service's rate and fees, the LLC's statements show US$36,500 credited in total. The log records each transfer at the dollars credited, with the Canadian amount sent, the fee and the rate beside it. On that basis the year's contribution is US$36,500; the preparer confirms whether Form 5472 takes the dollars received or the amount sent, and the log holds both. The rate source is named once and used for every entry in every year.

Platform payouts

In one year a payment platform account in the LLC's name pays the LLC US$85,000 after US$15,000 in fees. The books record US$100,000 of sales and US$15,000 of fees. With no reserve held back and no payout in transit at either year-end, sales less fees equal the deposits on the bank statements. The customers are unrelated and the account is the LLC's, so these lines stay in the books; only the owner's own transfers are on Form 5472. If the account is in the owner's name, see marketplace payouts in a foreign-owned LLC. The tie-out shows the bank account is fully explained before the owner's lines are pulled out.

Different for you?

• You learned the LLC should have filed Form 5472, perhaps for several years, and nobody tracked the owner's money or kept the platform statements. Which years to rebuild first, how much can be recovered or estimated, and who prepares the late forms are judgment calls. Bring the statements to cross-border tax help, and see bookkeeping help for the rebuild itself.
• You have an IRS notice or a penalty. A notice's deadline can change what is filed first: see missed Form 5472 and penalties and cross-border tax help.
• The LLC is already closed. The closing year can still be a filing year, because a final payment to the owner is a transaction (26 CFR 1.6038A-2(b)(11), Example 1). Whether closing changes the earlier missed years is in missed Form 5472 and penalties.
• Other business returns are also unfiled. See catching up on unfiled business returns.
• The LLC sells through marketplaces or app stores, or its money and yours are mixed in one account. See marketplace payouts in a foreign-owned LLC and untangling mixed business and personal funds, with bookkeeping help.
• The LLC has an account abroad. See FBAR for company accounts abroad.
• The LLC has profit, employees or a second owner, or you live in Canada. See when foreign owners owe US tax, a company with a foreign co-owner and Canadian owner of a US LLC.
• You want the books kept from now on. See bookkeeping for a foreign-owned US company and what the LLC files each year.