If you’re a foreign-owned U.S. corporation—or represent one—you likely already know that your IRS filing requirements are more complex than the average business. But what happens when your tax preparer fails to tell you that?
One of our newest clients found out the hard way: they were hit with a $25,000 civil penalty from the IRS for failing to file Form 5472—even though their U.S. corporation had zero activity. And yes, the penalty still applied.
They were previously working with another accounting firm in Plantation, Florida that failed to educate them on the compliance requirements of Section 6038A. The firm prepared their corporate return, but never mentioned that the IRS imposes an automatic $25,000 penalty on foreign-owned U.S. corporations that don’t file Form 5472—even if there’s no revenue, payroll, or expenses.
What Is Form 5472 and Section 6038A?
According to the IRS:
Form 5472 must be filed by any U.S. corporation with at least 25% foreign ownership when engaging in reportable transactions with a related party or when required under Section 6038A.
But the IRS rules go further. Even inactive foreign-owned corporations are required to file this form in most cases.
📌 Learn more about the form here: https://www.irs.gov/forms-pubs/about-form-5472
The Mistake That Cost $25,000
The prior firm (which shall remain unnamed) failed to:
- Advise the client that Form 5472 must be filed annually—even with no income
- Monitor the corporate structure for IRS foreign disclosure rules
- Submit Form 5472 with the timely filed Form 1120
As a result, the IRS automatically assessed the $25,000 civil penalty under Section 6038A for non-compliance.
How We Got the Penalty Removed
We immediately went to work:
- Filed IRS Form 2848 to represent the client
- Pulled IRS transcripts and case notes
- Filed a FOIA (Freedom of Information Act) request to obtain the IRS agent’s internal reasoning
- Found that the IRS failed to follow required procedures for penalty assessment
After 16 months of direct correspondence, case escalation, and strategic advocacy, we successfully secured a full penalty abatement.
This wasn’t about luck—it was about understanding the rules better than the IRS did and defending our client to the end.
Key Takeaways for Foreign-Owned Corporations
- You must file Form 5472 every year, even if your U.S. corporation is dormant
- The $25,000 penalty is automatic if Form 5472 is late or missing
- Hiring the wrong tax firm can cost you tens of thousands in unnecessary penalties
📌 See how we help with IRS issues here: https://polaristaxandaccounting.com/services/irs-tax-problems
Don’t Trust Your Corporation to an Unqualified Tax Preparer
There are many seasonal and undertrained tax shops operating in Plantation and across Florida. If your firm doesn’t understand international filing requirements, they shouldn’t be handling foreign-owned corporations—period.
At Polaris Tax & Accounting, we:
- Represent foreign-owned corporations across the U.S.
- Monitor filing deadlines and IRS updates
- Handle IRS correspondence and penalty defense
- File Forms 5472 and 1120 properly and on time
If you’re unsure whether your prior firm did things correctly—or if you’ve already received an IRS penalty—don’t wait.
Serving Plantation, Fort Lauderdale, and Beyond
Polaris Tax & Accounting is based in Plantation, FL and supports clients throughout the U.S. and internationally. Whether you’ve received a penalty, need help navigating IRS rules, or just want peace of mind—we’re here to help.