IRC Section 6038A: The Law Behind the $25,000 Penalty

Section 6038A sits in Chapter 61 of the Internal Revenue Code, alongside the other information-return rules that let the IRS police cross-border dealings. Its stated purpose is to give the IRS visibility into transactions between US entities and their foreign related parties, where transfer-pricing and profit-shifting abuses are hardest to detect. Form 5472 is simply the vehicle the section uses to collect that information.

The section pairs with §6501(c)(8), which is why the penalty is so dangerous: the normal three-year statute of limitations on assessment never starts running until the required information return is filed. For the mechanics of that clock, see Form 5472 and the statute of limitations. For the bigger 2026 picture, read OBBBA 2026 changes.

The coverage is broad by design. The statute does not look at profit or revenue — it looks at ownership and at transactions with related foreign parties.

The row most founders care about is the third: an ordinary single-member LLC owned by a non-US person. The key nuance is that the entity is treated as a corporation only for this information reporting — it still has no entity-level income tax. The parallel obligation under IRC §6038C applies to foreign corporations themselves.

For decades, a disregarded single-member LLC was invisible to the IRS for income-tax purposes — it simply reported nothing at the entity level. Foreign founders exploited that gap, and Treasury closed it with T.D. 9796. The regulation deems a foreign-owned US DE to be a corporation, but only for the limited purpose of §6038A reporting and record-keeping.

What this means practically

Your LLC still does not pay entity-level income tax and still does not file a real Form 1120. But it must now obtain an EIN (if it did not have one), keep records under §6001, and file Form 5472 attached to a pro formaForm 1120 — a bare cover sheet carrying just the entity’s name, address, and identifying numbers. The rule took effect for tax years beginning on or after January 1, 2017. The broader enforcement picture is covered in remittance tax changes 2026 and the IRC §6038A authority page.

The severity is deliberate. Congress priced the penalty high because the information it protects — related-party cross-border transactions — is exactly what the IRS cannot see any other way. Three features combine to make it one of the harshest information-return penalties in the Code:

Because there is no statute of limitations, a year missed long ago is still assessable today. The detailed math is on the Form 5472 penalty page, and the window mechanics are in the statute of limitations explainer.

The two sections are mirror images sharing one form. If your entity was formed in the United States — including your single-member LLC formed in Wyoming, Delaware, or New Mexico — you are squarely in §6038A territory. §6038C is for a corporation formed abroad that operates a US branch or has US effectively-connected income.

The distinction matters mainly for which income-tax return the Form 5472 attaches to. A §6038A US entity uses a pro forma Form 1120; a §6038C foreign corporation attaches Form 5472 to its Form 1120-F. Either way, the deadline is the same: April 15, or October 15 with a timely Form 7004. The filing itself cannot be e-filed — see below.

Compliance has three parts: maintain the books and records §6001 requires, obtain an EIN if you do not have one, and file Form 5472 each year you have a reportable transaction. Because funding the LLC counts as a reportable transaction, virtually every foreign-owned SMLLC must file — even with zero revenue.

One thing IRC 6038A is notconnected to: beneficial-ownership (BOI) reporting. Under FinCEN’s March 2025 interim final rule, US-formed entities — including foreign-owned US LLCs — are exempt from BOI; only foreign reporting companies file. Form 5472 is separate and still due every year.

DIY compliance is free but unforgiving: the $25,000 penalty applies even to an honest mistake or a missed deadline, and a foreign owner abroad cannot easily fix a rejected mailing in time. For a flat $299, form5472.tax prepares, reviews, and files your Form 5472 with the pro forma 1120 — well below the $547 charged by form5472.online and the $1,999/year annual-compliance bundles at doola and Firstbase.

See the full comparison on the pricing page or start on the apply page.