With each tax filing, foreign-owned LLCs face added reporting requirements with the approaching 2026 filing season. Avoid the headache of not filing, as the penalties for not completing just one form can exceed $25,000. This guide explains the foreign LLC IRS reporting requirements, specifically the most common errors, as well as some easy ways to remain compliant.

Forgetting to File Form 5472 for Foreign-Owned LLCs

The most commonly reported foreign LLC IRS mistake is not filing Form 5472. Many foreign owners of single-member LLCs often assume there is no need to file, but the IRS specifically states that foreign single-member LLCs must file Form 5472, even if they have no U.S.-source income.

The 5472 form is needed to represent financial transactions between the foreign related party and the LLC. Merely completing a wire, renting the business’s space, or even employing someone from the renter’s country results in all needing to be reported.

And the penalties for not filing do not just show up right after the deadline. The IRS just doesn’t let the matter go. Even if a filer requirements notice is sent and the foreign related party’s LLC does not file, for each 30-day deadline skipped, an additional $25,000 penalty is provided for no visible reason.

Using the Wrong EIN or Business Classification

One does not simply select the EIN and tax entity classification for taxation and for a partnership. Knowing the differences between “Disregarded Entity” and “Partnership” classification is crucial, as the foreign single-member LLC is required to file Form 5472 alongside Form 1120, while multi-member LLCs, on the other hand, must file Form 1065 with Schedule K-1s.

The IRS does not take lightly to receiving requests for multiple EINs, as it creates confusion and unnecessary filing duplications, the result of which can lead to filing penalties and the complication of state compliance issues.

Failing to Obtain or Renew ITINs for Foreign Members

The ITIN is not optional for foreign LLC members with U.S. tax responsibilities. Filing tax returns without an ITIN is a direct way to receive an IRS notice and a requirement to, subsequently, withhold K-1s, which always creates compliance issues.

ITINs can, and they most often do, expire as a result of three consecutive years of non-use. This is what happens if no filing has occurred that required the use of the ITIN between 2022 and the year of this notice. Lead time to apply for an ITIN during the busy tax filing period can take between 7 to 11 weeks, and with deadlines of March 16, 2026, for partnerships and April 15, 2026, for individual returns, these foreign LLC owners must obtain ITINs way in advance.

Missing the Form 1065 Filing Deadline

The Form 1065 due date for tax year 2025 is March 16, 2026, so each year, tax penalties of $235 per member begin accruing for each month of the 12 months (totaling $5,640 for two-member LLCs).

Once partners receive their partner tax returns (Schedules K-1), they can then complete their individual returns.

Not Filing Form 7004 for an Extension

Many founders/owners believe that because they missed the Form 1065 Deadline, they become non-compliant. However, that’s not the case because they receive an additional 6-month extension (total of 6 months) to September 15, 2026, for calendar year 1065 partnerships.

Also, Form 7004 extends the filing due date, not the payment due date. So, any taxes that are owed must be paid before the original due date, or imputed interest will accumulate.

Ignoring State Annual Compliance Requirements

IRS compliance is a federal concern, but each state has its own standalone annual report and franchise tax requirements. A lot of foreign LLCs lose their “good standing” status because of state filings that get forgotten. This can lead to suspending your business license, and can also lead to late fees that will keep piling up. Plus, it can get in the way of opening new bank accounts, and can create a headache for reinstating the business because of increased costs.

Submitting Inconsistent K-1 or Capital Account Information

Mismatches in K-1 forms that belong to the members and the LLC’s Form 1065 can be a red flag for the IRS. Form 1065 has a Schedule K-1 that the IRS cross-references, and it can create compliance issues if the information isn’t correct. This can be due to ownership percent not totaling to 100%, capital contributions being mismatched, or profit allocations being wrong or inconsistent.

Using Inaccurate Accounting or Currency Conversion

Foreign founders also tend to mix personal and business expenses or not convert foreign income properly. The IRS requires income to be reported in USD at the average yearly exchange rate or the spot rate at the date of the transaction.

There are a lot of mistakes that can be made, including failing to separate personal withdrawals from business expenses, misclassifying capital contributions as income, and using inconsistent dollar conversion methods.

Not Maintaining Supporting Documents for IRS Audits

These entities may be audited by the IRS for up to six years. Missing documentation of ownership, capital contributions, and income can cause an audit to be flagged. Important documents for the audit include Articles of Organization, correspondence from the IRS, bank statements, documents related to the transactions, and documents on the currency exchange rate.

Those who file Form 5472 must keep statements on all reportable transactions for at least three years after the filing.

Assuming a Dormant LLC Doesn’t Need to File

This is one of the most frequent of the foreign LLC IRS mistakes. Even with no income, Form 1065 for partnerships or Form 5472 for foreign-owned single-member LLCs still must be filed.

The IRS provides no exemptions for dormant or no-revenue LLCs with foreign ownership. There can be late or missing filings, which can lead to deactivation of the EIN, dissolution at the state level, penalties, and a lack of ability to reactivate the LLC when the owner is ready to continue with the business.

How EasyFiling Helps You Avoid These IRS Mistakes

EasyFiling helps you stay compliant with foreign LLC IRS requirements with:

• Prepare IRS Forms 1065, 5472, 7004, and 1040-NR: Expert service with full attention to detail
• Filing guaranteed by deadline: Submitted electronically with deadline monitoring
• Compliance at the state level: Continual tracking in all states at the same time
• Help you get an ITIN: The application process has been improved
• Help you when you need it: 365-day assistance to accommodate the business updates you have

With EasyFiling’s IRS Tax Filing Service, you can be sure that compliance is handled by professionals, and you can enjoy peace of mind.

FAQs About Foreign LLC IRS Mistakes and Penalties

What happens if I forget to file Form 5472?

You get an automatic penalty of $25,000 for not filing. Then, if IRS notices go unanswered within 90 days, there is the potential to receive additional penalties of $25,000 underground, accruing every 30 days, with no upper limit.

Can I fix a late Form 1065 filing?

Yes, but there will be penalties in place, which are $235 for each member/month for up to 12 months of overdue filings. It is best to have it filed immediately so that penalty accumulation can be stopped. Reasonable cause explanations can be provided if circumstances warrant penalty relief.

Do foreign owners need ITINs every year?

ITINs are only valid until you file tax returns for three consecutive years. If you do not file tax returns for three consecutive years, then you will need to renew your ITIN.

How much is the IRS penalty for foreign-owned LLCs?

If you do not file a Form 5472, the IRS will charge a penalty of $25,000, and on top of that, the amount does not have a limit. If you do not file Form 1065 on time, there will be a $235 per-member penalty for every month for 12 months. If you do not file on time, the penalties can be a lot.

Can EasyFiling handle my IRS filings from outside the U.S.?

Of course! EasyFiling is able to help foreign founders. Our team is able to deal with the IRS directly, and we will take care of compliance and document submission, no matter where you are.