What is the IRS? 0 USD federal vs 25,000 USD Form 5472 fine

240 million returns a year with around 80. A correctly filed foreign-owned SMLLC pays 0 USD in federal tax. A badly filed one starts with a 25,000 USD penalty for missing Form 5472. Know what the IRS requires.

The IRS handles more than 240 million returns a year with around 80,000 employees, and for a non-resident single-member LLC its attention narrows down to 2 forms: Form 1120 and Form 5472.

If you have a US LLC, or you're thinking about having one, you're going to hear a lot about the IRS. It's the entity you'll have the most relationship with from a tax perspective. Better to understand it well from the start.

What is the IRS?

The IRS (Internal Revenue Service) is the US federal tax agency. It's the equivalent of:

AEAT (Agencia Tributaria) in Spain
SAT in Mexico
DIAN in Colombia
AFIP in Argentina
SII in Chile

Its main function is collecting federal taxes and enforcing US tax legislation.

Your LLC's relationship with the IRS

Although your LLC doesn't pay US federal taxes (as a Disregarded Entity with a non-resident owner), the IRS is still relevant because:

1. It assigns your EIN

The EIN (Employer Identification Number) is your LLC's tax number. Issued by the IRS, you need it for practically everything: opening bank accounts (Mercury, Relay), registering on Stripe, filing returns, and the BOI Report.

2. You file annual returns

Each year you must file Form 5472 + Form 1120 with the IRS. It's an informational filing that reports transactions between you and your LLC. You don't pay taxes, but the IRS wants to know what movements occurred.

3. It requires timely compliance

The IRS expects Form 5472 to be filed on time each year. The penalty for non-filing is $25,000 per form per year (IRC §6038A). This is a significant administrative obligation that we handle for you as part of our maintenance service. Relax: at Exentax this is what we do every week, we close it before the letter ever lands in your inbox.

4. It defines your LLC's tax classification

The IRS determines how your LLC is treated for tax purposes. For a Single-Member LLC with a foreign owner, the classification is "Disregarded Entity", meaning the LLC itself is not a taxpayer. All income passes through to you.

How the US tax system works for non-residents

Income source. the critical concept

What determines whether you pay US taxes is not where your LLC is registered, but where the income comes from:

You design a website for a German client from your home in Spain → income of foreign source → not taxed in the US
You design a website for a New York client while physically in New York → income of US source → could be taxed (IRC §871/882)

For most freelancers and digital entrepreneurs, income is foreign-source, resulting in 0% US federal tax.

Key IRS deadlines

The forms you should know (and that we prepare for you)

Form 5472. the most important

The informational form reporting transactions between the LLC and its foreign owner:

Capital contributions from the member
Distributions (Owner's Draws) to the member
Loans between LLC and member
Payments for services between related parties

Not filing on time carries a $25,000 penalty per form per year. The IRS takes this form very seriously. We close it with you from Exentax: one call, the filing goes out, the archive is set, and the risk stays on paper.

Form 1120. the "cover" for the 5472

Form 5472 can't be filed alone. It goes attached to a Form 1120 (corporate tax return) that, for a Disregarded Entity, is filed with fields at zero (because there's no tax to pay). It's basically an envelope for the 5472.

Form 7004. the extension

This form requests a 6-month extension (from April 15 to October 15). It's automatic. the IRS cannot deny it if properly filed. We file it for all our clients as standard practice.

FBAR (FinCEN Form 114)

If your US financial accounts exceed $10,000 at any point during the year, you must file this report with FinCEN (not the IRS, but often discussed together). Deadline: April 15 (automatic extension to October 15).

Can I communicate with the IRS?

Yes, but it's not the most agile experience:

Phone line: Long hold times (45+ minutes is normal)
Mail correspondence: Everything formal goes by postal mail (yes, today)
Online portal (IRS.gov): For queries, forms, and some tools

For non-residents, communicating with the IRS can be especially complicated due to time zones and language requirements (everything is in English). That's exactly why you work with a service like Exentax. we handle all IRS communication for you.

The IRS penalty structure you should know

The IRS doesn't mess around. Understanding the penalty framework helps you appreciate why compliance matters:

For a non-resident LLC owner with no US-source income, the most relevant is the Form 5472 penalty. Filing on time (directly or with extension via Form 7004) eliminates this risk completely. Relax: at Exentax this is what we do every week, we close it before the letter ever lands in your inbox.

What the IRS sees about your LLC

The IRS has the following information about your LLC:

Your EIN and the entity it's linked to
Your Form 5472 filings showing LLC-owner transactions
Your Form 1120 (pro-forma, all zeros for Disregarded Entity)
Your Form 7004 extension requests
Any 1099 forms issued by US clients who paid your LLC
Banking information (1099-INT for interest income)

This information is available to the IRS and, under certain circumstances, can be shared with foreign tax authorities through treaty mechanisms.

At Exentax: your IRS buffer

We serve as the buffer between you and the IRS. All communication, all filings, all deadlines. handled by us. You never need to call the IRS, navigate their website, or mail a form. We handle Form 7004 (automatic extension), Form 5472 + 1120 (annual filing), FBAR (if applicable), and respond to any IRS notices on your behalf.

If something in this structure left you wanting more detail, US LLC for digital marketing agencies: structure, billing and scaling and US LLC for software developers and SaaS founders: the complete guide dive into neighbouring pieces of the puzzle we usually keep for separate write-ups.

Legal and regulatory references

This article relies on rules currently in force. Main sources for verification:

United States. Treas. Reg. §301.7701-3 (entity classification / check-the-box); IRC §882 (tax on foreign income effectively connected with a US trade or business); IRC §871 (FDAP and withholding on non-residents); IRC §6038A and Treas. Reg. §1.6038A-2 (Form 5472 for 25% foreign-owned and foreign-owned disregarded entities); IRC §7701(b) (tax residency, substantial presence test); 31 U.S.C. §5336 (Corporate Transparency Act, BOI Report to FinCEN).
Spain. Law 35/2006 (LIRPF), arts. 8, 9 (residency), 87 (income attribution), 91 (CFC for individuals); Law 27/2014 (LIS), art. 100 (CFC for companies); Law 58/2003 (LGT), arts. 15 (anti-abuse) and 16 (simulation); Law 5/2022 (Form 720 penalty regime after CJEU C-788/19 of 27/01/2022); RD 1065/2007 (Forms 232 and 720); Order HFP/887/2023 (Form 721 crypto). That is exactly why at Exentax we keep your calendar tight — you stop thinking about deadlines and we close them before they ever bite.
Spain–US treaty. BOE of 22/12/1990 (original DTT); Protocol in force since 27/11/2019 (passive income, limitation on benefits).
EU / OECD. Directive (EU) 2011/16, amended by DAC6 (cross-border arrangements), DAC7 (Directive (EU) 2021/514, digital platforms) and DAC8 (crypto-assets); Directive (EU) 2016/1164 (ATAD: CFC, exit tax, hybrid mismatches); OECD Common Reporting Standard (CRS).
International framework. OECD Model Convention, art. 5 (permanent establishment) and Commentaries; BEPS Action 5 (economic substance); FATF Recommendation 24 (beneficial ownership).

Applying any of these rules to your specific case depends on your tax residency, the LLC's activity and the documentation you keep. This content is informational and does not replace personalized professional advice.

Banking and tax facts worth clarifying

Fintech and CRS information evolves; here is the current state:

Before going further, put numbers on your case: the Exentax calculator compares, in under 2 minutes, your current tax bill with what you would carry running a US LLC properly declared in your country of residence.

> Talk to our team

Notes by provider

Mercury operates with several federally chartered partner banks and FDIC coverage via sweep network: mainly Choice Financial Group and Evolve Bank & Trust, with Column N.A. still in some legacy accounts. Mercury is not itself a bank; it is a fintech platform backed by those partner banks. If Mercury closes an account, the balance is typically returned by paper check mailed to the account holder's registered address, which can be a serious operational problem for non-residents; keep a secondary account (Relay, Wise Business, etc.) as contingency.
Wise ships two clearly different products: Wise Personal and Wise Business. For an LLC you must open Wise Business, not the personal account. Important CRS nuance: a Wise Business held by a US LLC sits outside CRS because the account holder is a US entity and the US is not a CRS participant; the USD side operates via Wise US Inc. (FATCA perimeter, not CRS). In contrast, a Wise Personal opened by an individual tax-resident in Spain or another CRS jurisdiction does trigger CRS reporting via Wise Europe SA (Belgium) on that individual. Opening Wise for your LLC does not bring you into CRS through the LLC; a separate Wise Personal in your own name as a CRS-resident individual does report.
Wallester (Estonia) is a European financial entity with an EMI/issuing-bank licence. Its European IBAN accounts are within the Common Reporting Standard (CRS) and therefore trigger automatic reporting to the tax administration of the holder's country of residence.
Payoneer operates through European entities (Payoneer Europe Ltd, Ireland) that are also in scope for CRS for clients resident in participating jurisdictions.
Revolut Business: when paired with a US LLC, it operates under Revolut Technologies Inc. with Lead Bank as its US banking partner. The account delivered is a US account (routing + account number); no European IBAN is issued to a US LLC. The European IBANs (Lithuanian, Belgian) belong to Revolut Bank UAB and are issued to European clients of the group. If you are offered a European IBAN tied to your LLC, confirm exactly which legal entity holds that account and which regime it reports under.
Zero tax: no LLC structure delivers "zero tax" if you live in a country with CFC/tax transparency or income attribution rules. What you achieve is no double taxation and correct reporting at residence, not elimination.

What the IRS is and a practical guide for LLC owners: how it sees you, what it asks and how to deal with it

The IRS (Internal Revenue Service) is the US federal tax authority. For a non-resident LLC owner it is no more bureaucratic than any European tax office - but procedural, predictable and, if you know the flow, free of surprises. Operational guide to understand what the IRS wants and how to give exactly that.

How the IRS identifies you. As individual, by ITIN (if requested with W-7) or by absence (not mandatory for non-resident without US-source income). As entity, by your LLC's EIN (Form SS-4 at formation). The EIN is for life; you change address with Form 8822-B, not with the EIN. LLC without EIN is paper - no fiscal life.
What it requires from non-resident single-member LLC. Annual Form 5472 + Form 1120 pro forma (due 15 April, extension to 15 October with Form 7004). The 5472 reports "reportable transactions" between the LLC and its foreign owner. The 1120 pro forma is a wrapper: the disregarded LLC pays NO federal tax, but the form is mandatory as 5472 support.
When it requires W-8BEN-E. Not the IRS directly, but any US payer (Stripe, Amazon, broker, corporate client) needing to document non-resident status to not withhold 30%. The W-8BEN-E lives 3 years or until circumstance change. Without it, default withholding applies and recovery is slow.
How the IRS communicates with you. By postal mail to the LLC address. NEVER by email, NEVER by unsolicited phone, NEVER by WhatsApp. Any digital "from the IRS" communication is phishing. Real letters have a CP number (CP504, CP14, CP2000, etc.) verifiable at irs.gov.

What we are asked the most

Do I have to have ITIN for my LLC? No, unless you need to sign W-9 (rare as non-resident), receive K-1 from US partnership, or are taxed US-source income requiring 1040-NR. For disregarded single-member LLC without US-source income, the EIN is enough.

If the IRS sends a letter I do not understand, what do I do? Do not respond hot. Identify the CP code, find the model at irs.gov, calculate response deadline (typically 30 days) and consult with EA or CPA. Ignoring is worst: turns notice into penalty.

At Exentax we act as your IRS interlocutor (filings, replies, penalty abatement) - so the IRS is procedural, not stressful.

Legal & procedural facts

FinCEN and IRS reporting requirements moved recently; the current state is:

BOI / Corporate Transparency Act: your LLC is NOT required to file (a competitive advantage). After FinCEN's March 2025 interim final rule, the BOI Report obligation was narrowed to "foreign reporting companies" (entities formed OUTSIDE the US and registered to do business in a state). A US-formed LLC owned by a non-resident does NOT file the BOI Report: one fewer filing on your calendar, less paperwork, and a cleaner structure than ever. If your LLC was formed before March 2025 and you already filed BOI, keep the acknowledgement. The regulatory status can change again: we monitor FinCEN.gov on every filing and, if the obligation comes back, we handle it at no extra cost. Current status verifiable at fincen.gov/boi.
Form 5472 + pro-forma 1120. For a Single-Member LLC owned by a non-resident, the final regulations of Treas. Reg. §1.6038A-1 (in force since 2017) treat the LLC as a corporation for 5472 purposes. Procedure: pro-forma Form 1120 (header only: name, address, EIN, tax year) with Form 5472 attached. It is filed by certified mail or fax to the IRS Service Center in Ogden, Utah, not e-filed via standard MeF. Due date: April 15; extension via Form 7004 to October 15. Penalty: $25,000 per form per year, plus $25,000 per additional 30 days of non-filing after IRS notice.
Substantive Form 1120. Only applies if the LLC has filed a check-the-box election to C-Corp (Form 8832): it then pays 21 % federal corporate tax and files a substantive 1120. A standard disregarded LLC does not file a substantive 1120 and does not pay federal corporate tax.
EIN and notice. Without an EIN you cannot file 5472 or BOI. The IRS does not warn before imposing penalties; you find out when an EIN is flagged or a later filing is rejected. At Exentax we have closed clients in exactly this spot at zero penalty. Speaking up early pays off — and saves you five figures.

On the same topic

What if HMRC, the IRS or my local tax authority asks about my LLC?

It's the question every client raises in the first consultation, and the short answer is: your LLC isn't opaque, and a properly declared structure closes any inquiry in standard forms. Your tax authority can request the state Certificate of Formation (Wyoming, Delaware or New Mexico), the EIN issued by the IRS, the signed Operating Agreement, the Mercury or Wise statements for the year, the Form 5472 plus pro-forma 1120 you filed, and the bookkeeping that reconciles income, expenses and movements. If all of that exists and is delivered in order, the inquiry doesn't escalate.

What tax authorities do pursue, and rightly, is sham ownership (nominees, paper residency) and undeclared foreign accounts. A well-structured LLC is the opposite: you appear as beneficial owner in the BOI Report when applicable (verifiable at fincen.gov/boi), you sign the bank accounts and you declare the income where you actually live. The structure is registered with the state Secretary of State, with the IRS and, when European banks are involved, inside the CRS perimeter of the OECD standard.

The mistake that really sinks an inquiry isn't having an LLC; it's not attributing the income correctly in your domestic return, not declaring foreign accounts when the year-end balance exceeds the local threshold (€50,000 in Spain via Modelo 720; the equivalent FBAR / Form 8938 in the US for residents; T1135 in Canada), and not documenting related-party transactions between the member and the LLC. Those three fronts are worth closing before any request arrives, not after.

## What an LLC does NOT do

- It does not exempt you from tax in your country of residence. If you live in Spain, France, Germany or Portugal, you are taxed there on worldwide income. The LLC organises your US side (zero federal tax for non-resident SMLLC pass-through, absent Effectively Connected Income); it does not switch off your domestic taxation. The income tax is computed on the attributed profit, not on the dividends actually paid.

- It is not an offshore vehicle or a BEPS scheme. It is a US entity recognised by the IRS, registered in a specific state with physical address, registered agent and annual informational filings. Classic offshore jurisdictions (BVI, Belize, Seychelles) leave no public trace; an LLC leaves a trace in five different places.

- It does not protect you if you commingle funds. The pierce the corporate veil doctrine kicks in as soon as a judge sees the LLC and the member behaving as the same wallet: mixed accounts, personal expenses paid from the LLC, no signed Operating Agreement, no bookkeeping. Three suspicious transactions are enough.

- It does not save you social security contributions at home. If you are self-employed in Spain, France or Germany, your monthly social contribution remains identical. The LLC handles the trading side with international clients; your personal contribution is independent.

- It does not exempt you from declaring foreign accounts. Spain residents file Modelo 720 / 721; UK residents, the SA106; Portugal residents, the Anexo J of Modelo 3 IRS; Germany residents, the Anlage AUS. Those obligations belong to the individual, not to the LLC.

At Exentax we cover those five fronts every year alongside the US federal calendar (Form 5472, pro-forma 1120, FBAR, state Annual Report and BOI Report when applicable). The goal is that no inquiry finds a loose end and that the structure withstands a 5-to-7-year retroactive review.

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