QUESTION: As a foreign owner of a U.S. single-member LLC, I realized that we missed the filing deadline for the pro forma Form 1120 and Form 5472. Should we file a “Delinquent International Information Return” and include a statement explaining our delay to avoid potential penalties?
EXPERTS ANSWER:
If you’re a foreign owner of a U.S. single-member LLC and have missed the filing deadline for the pro forma Form 1120 and Form 5472, you might be considering the Delinquent International Information Return Submission Procedures. Here’s what you need to know about managing potential penalties and whether to attach a reasonable cause statement.
Understanding the IRS Stance: The IRS has explicitly stated that penalties may be assessed during the processing of delinquent international information returns without considering any attached reasonable cause statement. This implies that while you can attach such a statement, it might not influence the initial penalty decision.
Strategic Considerations:
- Initial Submission: Focus on filing the delinquent forms promptly through normal filing procedures. This is crucial in showing compliance effort.
- Attaching Statements: Attaching a reasonable cause statement at the time of filing is an option, but it may not be immediately considered. The IRS typically reviews these statements more thoroughly only if penalties are assessed and a further review is initiated.
- Reserving Your Reasons: Based on professional experience, it may be wise to reserve your detailed reasons for delay until after a penalty is imposed. This allows you to tailor your response specifically to any IRS queries or requirements for penalty abatement, potentially making a stronger case.
Practical Steps:
- File Delinquent Returns: File all required forms as soon as possible to mitigate further complications.
- Optional Reasonable Cause Statement: Attach a statement if you believe it strengthens your case, but prepare to defend your reasons more robustly if contacted by the IRS.
- Respond to IRS Correspondence: Be ready to submit or resubmit reasonable cause information if the IRS requests it after the initial assessment.
Past Enforcement Insights: While I have experienced cases where clients did not face penalties for late submissions since 2017, this is not a guaranteed outcome. Every case is evaluated individually, and past leniency does not assure a similar outcome in your situation.
While attaching a reasonable cause statement at the time of filing your delinquent returns is permissible, its immediate impact on penalty assessment may be limited. Focus on compliance first by filing the required forms, and be prepared to engage in a detailed discussion with the IRS if penalties are assessed.
Further Assistance: For more detailed advice tailored to your specific circumstances or to discuss your case with a tax professional, consider utilizing O&G Tax and Accounting Services. Our experts are equipped to assist with complex international tax issues and can help ensure your compliance with U.S. tax obligations. Schedule your consultation today to explore premium options and receive expert guidance: Book Your Consultation.
