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IllegalLegal

Form 5472: the $25,000 fine LLC sellers don’t mention

Valid as of 22 October 20263 min read

Guide 22 · valid as of 22 October 2026 · getsahla.com

A US LLC wholly owned by a foreign person must file Form 5472 with the US tax office (IRS) every year, even with no income at all. Missing it costs a $25,000 penalty per form, and the penalty keeps growing after a reminder. And for an Algerian resident, the LLC itself is already illegal.

Take Sami, a developer in Constantine. In 2025 he set up a Wyoming LLC through a $199 “all-inclusive” online service. Nobody told him about Form 5472. In 2026, a letter from the IRS arrives: a $25,000 penalty for 2025.

What the IRS says

  • Who must file. A “foreign-owned U.S. DE” is a US entity that’s disregarded for tax (such as a single-member LLC) and “wholly owned by one foreign person”. It’s treated as a reporting corporation and must file Form 5472.
  • How. The form is attached to a “pro forma” Form 1120, by that return’s due date (extensions included). It can’t be filed electronically: by mail or fax only.
  • What to report. Transactions between the LLC and its owner, including money put in and taken out (“contributions” and “distributions”). An LLC that received even its formation fees from you has something to report.
  • The penalty. $25,000 for each form not filed or filed incomplete. If it isn’t filed within 90 days of an IRS notice, another $25,000 for each 30-day period or part of one, with “no maximum”.
  • Records. The company must keep permanent books; failing to do so also carries the $25,000 penalty.

The methods

Illegal

Setting up an LLC while living in Algeria

For an Algerian resident, owning a company abroad to collect client payments is illegal: assets held abroad are banned (Regulation 07-01, art. 8), and moving capital out needs an authorisation you won’t get (Law 23-09, art. 144). Guide 21 explains this in detail. Form 5472 comes on top: you face an exchange-control offence in Algeria and US obligations that LLC formation services don’t always mention.

Legal

If you already have an LLC: get straight on both sides

  1. In the US: have a US tax professional check the years already gone, and file Form 5472 with its pro forma 1120 every year. Don’t wait for a letter from the IRS.
  2. In Algeria: if you’re a resident, talk to a lawyer about closing the LLC and bringing the money home (guides 17 and 21). Money brought home late arrives in dinars (guide 8).
  3. From now on: invoice clients in your own name as an auto-entrepreneur, with a foreign currency account in Algeria (guides 4 to 7).
Legal

If you really live abroad

An Algerian who isn’t a resident (their main centre of economic activity is outside Algeria, Law 23-09, art. 143) can own an LLC without breaking Algerian exchange rules. The US obligations stay the same: Form 5472, the pro forma 1120 and the books, plus the taxes of the country you live in (guide 28).

Key points

  • Foreign-owned LLC: Form 5472 every year, even with no income.
  • Missed form: $25,000 per form, then $25,000 per 30-day period (or part of one) of delay after a notice.
  • Living in Algeria: the LLC is already an exchange-control offence.

Sources