Introduction: Why Form 5472 Catches British Owners of American LLCs
Form 5472 carries a $25,000 penalty per year, applies to companies with no income whatsoever, and is missed by a striking proportion of the UK-resident families who own an American LLC. Furthermore, the exposure usually surfaces years later, once several annual penalties have already stacked up.
The pattern is remarkably consistent. A British investor forms a Delaware or Wyoming LLC to hold American property. Alternatively, the non-American spouse in a cross-border family takes ownership of a US vehicle for perfectly sensible reasons. Consequently, everyone assumes that an entity with no US trade, no employees and no profit has nothing to file. That assumption is wrong, and it is expensive.
At TaxYork we handle these corrections regularly for wealthy cross-border households. Moreover, we have written this guide to cover what the American expat sites consistently omit: the HMRC side of the same structure, and the 2026 reporting changes that have confused matters further.
What Form 5472 Is, and Why a Dormant LLC Still Files
Form 5472 is the Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Specifically, it discloses transactions between an American entity and its foreign related parties, under section 6038A of the Internal Revenue Code.
Since 2017, the rules reach far wider than the title suggests. Importantly, a US limited liability company wholly owned by a single foreign person is treated as a corporation solely for these reporting purposes. Therefore, the entity that is invisible for American income tax becomes highly visible for American disclosure, and Form 5472 becomes mandatory.
Who This Guide Addresses
This guide serves high-net-worth families and investors with one foot in each jurisdiction. Additionally, it addresses American company owners whose structures include a foreign parent, and cross-border households where the British spouse holds the American entity. For the wider annual picture, our guidance on US tax return preparation for expats explains how entity filings sit alongside personal returns.
Which UK-Connected Owners Must File Form 5472
Three ownership patterns dominate our caseload, and the first is the one almost nobody expects. The official Form 5472 instructions set out the categories formally, though the practical application to British owners deserves proper explanation.
The Single-Member LLC Owned by a Non-American Spouse
Where a UK national wholly owns an American LLC, that LLC is a foreign-owned disregarded entity. Consequently, it must obtain an employer identification number and file Form 5472 attached to a pro forma Form 1120 every year. Neither profitability nor US-source income affects this conclusion.
The cross-border family dimension makes this particularly easy to miss. Specifically, the American spouse files a full 1040 with their accountant, while the British spouse assumes their LLC belongs to a separate, dormant corner of the family's affairs. Meanwhile, the penalty accrues against the entity, not the individual.
The 25% Foreign-Owned US Corporation
A US corporation with a foreign shareholder holding 25% or more of vote or value files Form 5472 for each reportable transaction with a related party. Notably, ownership aggregates across related persons, so a British couple holding 15% and 12% respectively cross the threshold together. Furthermore, indirect and constructive ownership both count.
UK Companies Holding American Subsidiaries
Where a British trading company owns an American subsidiary, the subsidiary files. Additionally, intercompany balances that feel routine to a UK finance director are reportable transactions in Washington. Management charges, interest-free advances and cost recharges all belong on the return, and our cross-border planning specialists routinely rebuild these schedules for groups that reported nothing at all.
The Reportable Transaction Trap for Dormant LLCs
Here the American rules diverge sharply from British intuition. In the UK, a dormant company files dormant accounts and nothing more. In contrast, an American disregarded entity can be commercially dormant and still have reportable transactions.
Capital Contributions and Formation Costs Count
For a foreign-owned disregarded entity, reportable transactions expressly include amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity. Therefore, the money you wired in to capitalise the LLC is itself reportable. Consequently, an LLC that did nothing beyond existing has a filing obligation from its very first year.
This single point explains most of the unfiled returns we correct. Above all, remember that "no activity" in the commercial sense does not mean "no reportable transactions" in the statutory sense.
Why a Property-Holding LLC Almost Always Files
American property is the most common reason British investors form an LLC in the first place. However, the purchase itself involves a contribution from the owner, and the ongoing position usually involves further funding for renovation, service charges or mortgage payments. Consequently, a property-holding vehicle files Form 5472 every year without exception in practice.
Additionally, the owner faces a separate personal obligation on the rental income as a non-resident alien taxpayer. Notably, these are two distinct filings, and satisfying one does nothing for the other.
Loans, Rent and Interest-Free Advances
Money moving between the owner and the entity is reportable regardless of documentation. Furthermore, an interest-free advance from a British parent to an American subsidiary appears on the return even though no interest changed hands. Meanwhile, rent, royalties, commissions and the sale of any asset all belong in the transaction schedules.
How to File Form 5472 Correctly
The mechanics defeat many filers, because this return behaves unlike anything in the British system. Consequently, a technically correct Form 5472 frequently arrives late simply because the owner could not work out how to submit it.
The Pro Forma Form 1120 Cover Sheet
A foreign-owned disregarded entity cannot file Form 5472 on its own. Instead, it attaches the form to a pro forma Form 1120, completing only the name, address and a small number of identifying items, with "Foreign-owned U.S. DE" written across the top. Importantly, this cover sheet creates no corporate tax liability whatsoever. Rather, it exists purely to carry the disclosure.
The EIN Problem for Applicants Without a Social Security Number
Your LLC needs an employer identification number before it can file anything. However, the online application requires the responsible party to hold a US taxpayer identification number, which a British owner typically lacks. Therefore, you must apply on Form SS-4 by fax or post, and you should allow several weeks.
We see this bottleneck derail otherwise well-organised clients every year. Consequently, start the EIN process well before the filing deadline rather than in the week before it.
Why You Cannot E-File, and How to Extend
The IRS states plainly that a foreign-owned US disregarded entity cannot file Form 5472 electronically. Instead, you fax the package to 855-887-7737 or post it to the dedicated Ogden address. Furthermore, the return is due when the Form 1120 is due, and you may extend it by filing Form 7004 to reach the autumn deadline. Additionally, note that the form itself has been revised recently, so always work from the current revision rather than a saved copy.
The 2026 Beneficial Ownership Exemption That Changes Nothing Here
A significant source of confusion has emerged since 2025, and it causes British owners to believe their American reporting has been abolished. It has not.
Domestic LLCs No Longer Report Beneficial Ownership
FinCEN issued an interim final rule on 26 March 2025 that redefined a reporting company under the Corporate Transparency Act. Consequently, entities formed in the United States, together with their beneficial owners, are now exempt from filing beneficial ownership information. Only entities formed under foreign law and registered to do business in an American state remain within scope, as the FinCEN beneficial ownership guidance confirms.
Your Delaware LLC was formed in America. Therefore, it is a domestic entity, and it no longer files a beneficial ownership report despite having a foreign owner.
Why Form 5472 Survived the Change
The two regimes are entirely separate, and this is where owners come unstuck. Specifically, beneficial ownership reporting sits with FinCEN under anti-money-laundering law, while Form 5472 sits with the IRS under the tax code. Consequently, the 2025 exemption removed one obligation and left the other completely untouched.
We have met several clients who read about the FinCEN change, concluded that their LLC reporting had ended, and stopped filing. Ultimately, that reading costs $25,000 a year.
The UK Side: Anson and the Opaque LLC Problem
No American guide covers this, yet it determines what the structure actually costs a British owner. Furthermore, it is the question our UK-resident clients care about most.
How HMRC Treats a US LLC
HMRC generally regards a US LLC as opaque, meaning a taxable entity in its own right rather than a transparent partnership. In contrast, the American default treats a multi-member LLC as transparent and taxes the members directly. Consequently, the same vehicle is a company on one side of the Atlantic and a partnership on the other.
The Supreme Court examined this in Anson v HMRC, decided in 2015, and found on those particular facts that the member had an entitlement to profits as they arose. However, HMRC treats that outcome as specific to the facts of the case. Accordingly, its published position in the international manual guidance on US LLCs remains that such entities are ordinarily opaque.
Where Double Taxation Arises
The mismatch creates a genuine risk of economic double taxation. Specifically, America may tax the member on profits as they arise, while Britain taxes the same member only on distributions, and treats those distributions as dividends from an opaque company. Therefore, the timing and the character of the income diverge, which can strand foreign tax credits entirely.
Claiming Relief in Practice
Relief claims relying on the Supreme Court decision are considered case by case, so documentation matters enormously. Furthermore, the operating agreement itself often decides the outcome, because entitlement to profits turns on what that document actually says. Our treaty and double tax relief specialists review the agreement alongside the returns, since arguing the point after filing is considerably harder.
Form 5472 Penalties and Correcting Late Filings
The financial exposure here exceeds most comparable information returns, and it compounds quickly.
The $25,000 Charge, Per Form, Per Year
A penalty of $25,000 applies to any reporting corporation that fails to file when due. Moreover, where the failure continues beyond 90 days after IRS notice, a further $25,000 applies for each 30-day period or fraction thereof. Notably, the statute sets no overall cap on that continuation charge, which distinguishes it sharply from other international information returns.
Consider the arithmetic. Five unfiled years produce $125,000 before the IRS has issued anything. Consequently, a dormant property vehicle can generate a penalty exceeding the value of the property's annual rent several times over.
Reasonable Cause and the Delinquent Route
Late returns should go in with a reasonable cause statement setting out the specific facts. Furthermore, the strongest arguments for British owners usually involve reliance on a professional who never identified the requirement, or formation through an agent who filed the state paperwork and said nothing about federal disclosure. However, relief is not automatic, and the IRS may assess penalties before considering the statement you attached.
The Limitation Period Stays Open
Where a required information return remains unfiled, the assessment period for the related return stays open. Therefore, waiting achieves nothing except a longer exposure window. Ultimately, voluntary correction remains substantially cheaper than an examination.
Case Study: A London Family's Delaware Property Vehicle
The following illustrates how quickly the numbers escalate, using figures from a representative engagement.
The Position We Inherited
An American executive living in Kensington held his UK affairs cleanly, filing his 1040 and his Self Assessment return every year. His wife, a British national with no American connection, had formed a Delaware LLC in 2020 to hold a Manhattan apartment. She contributed $1.4m to purchase it, let it out, and instructed a Manhattan property manager. Consequently, nobody in the family considered that the LLC itself owed anything to the IRS.
The Numbers
The LLC had filed nothing for five years. Therefore, five missed returns produced $125,000 of baseline penalty exposure at $25,000 each. Additionally, the $1.4m capital contribution was itself a reportable transaction in 2020, which removed any argument that the entity had been inactive. Meanwhile, the rental income had never been reported personally either, since the property manager withheld at the gross rate rather than filing on a net basis.
The Outcome
We obtained an EIN for the entity, prepared five pro forma Form 1120 packages with Form 5472 attached to each, and submitted them with a detailed reasonable cause statement documenting the formation agent's silence. Furthermore, we filed the outstanding personal returns with a net election, which cut the tax on the rental income substantially by allowing depreciation and expenses. Ultimately, the family avoided the penalties entirely and recovered roughly $46,000 of over-withheld tax.
How TaxYork Can Help With Form 5472 Compliance
We advise wealthy cross-border families whose structures span both systems, and entity reporting sits at the centre of that work.
Mapping Every Entity in the Family Structure
Our review covers everything the household owns on both sides, including vehicles held by non-American spouses. Consequently, obligations that fall outside the American partner's own return still surface early.
Preparing the Complete Package
We obtain the EIN, prepare the pro forma return, complete Form 5472 accurately and handle the submission, since the filing cannot go electronically. Additionally, we coordinate the personal filings that usually accompany it, including any foreign tax credit position arising on the British side.
Resolving the UK Treatment
Above all, we address the question American preparers leave open. Specifically, we assess how HMRC will characterise the entity, whether relief is available, and whether the structure still serves the family at all. The technical resources published by the ICAEW tax faculty and the Chartered Institute of Taxation inform that analysis alongside our own experience.
Conclusion
Form 5472 represents an unusually harsh trap, because it punishes inactivity as severely as it punishes evasion. Furthermore, the $25,000 annual charge applies to entities that earned nothing, and the continuation penalty carries no ceiling.
The position is entirely fixable, however. Established correction routes work, particularly where the facts genuinely support reasonable cause. Therefore, if anyone in your household owns an American LLC, establish its filing history now. Ultimately, a Form 5472 prepared voluntarily costs a professional fee, while one prepared under examination costs a great deal more.
Contact Us
Speak to our US-UK specialists about your American entity and any missing filings. We work with investors, company owners and cross-border families across London and the wider United Kingdom, and we handle historic corrections discreetly.
Email hello@taxyork.com or call 020 3488 8606. Alternatively, book a consultation and we will assess your Form 5472 position confidentially, together with the UK treatment of the same structure.
Disclaimer
This article provides general information about United States and United Kingdom tax reporting requirements and does not constitute professional advice. Tax legislation and administrative practice change frequently, and the correct treatment depends entirely on your individual circumstances, residency position and entity structure. Figures and procedures cited reflect rules current at the date of publication. You should obtain specific professional advice before acting on anything set out above. TaxYork accepts no liability for action taken or omitted in reliance on this article.