TITLE: US Tax Alert: New IRS Foreign Tax Credit Rules, the 15 October Deadline, and Form 5472 Penalties
Review the new foreign tax credit proposals
On 11 September 2026, the IRS and Treasury published proposed regulations under REG-117273-25, listed in the Federal Register as 91 FR 57832.
The proposals address how deductions are allocated and apportioned to:
- Foreign-source section 951A category income for foreign tax credit limitation purposes.
- Deduction eligible income (DEI).
- Foreign-derived deduction eligible income (FDDEI) used in section 250 calculations.
The proposals implement changes introduced by the One Big Beautiful Bill Act (OBBBA) to sections 250(b)(3) and 904(b)(5). They are intended to apply to tax years beginning after 31 December 2025.
Comments are due by 10 November 2026.
Who may be affected?
The proposals are primarily relevant to:
- US corporations with controlled foreign corporations (CFCs).
- Groups calculating section 951A or GILTI-related income.
- Companies claiming or reviewing the FDII deduction.
- International groups allocating interest, research, and experimental costs.
- Businesses claiming foreign tax credits against US tax liabilities.
The proposed approach generally provides special treatment for deductions connected with section 951A category income. For example, interest and certain research and experimental costs are not allocated to that category under the new section 904(b)(5) framework. Other deductions may need to be directly allocable before they can reduce the relevant foreign-source income.
These are proposed rules, not final regulations. However, companies with CFCs or FDII calculations should begin reviewing their accounting data and expense classifications now. Early preparation will make it easier to identify affected calculations before filing.
For background, review the IRS guidance on the foreign tax credit.
Prepare for the 15 October filing deadline
The 15 October 2026 deadline applies to many taxpayers that obtained an extension, including:
- Calendar-year corporations filing Form 1120.
- Individual taxpayers who filed an extension for Form 1040.
- Certain foreign-owned US disregarded entities that extended their information filing using Form 7004.
The deadline does not remove the requirement to keep accurate records. It only gives you additional time to complete and submit the required return or information forms.
Protect your US LLC from Form 5472 penalties
A foreign-owned US disregarded entity, such as a single-member LLC owned by a non-US resident, may need to file:
- A pro forma Form 1120.
- Form 5472 for each relevant reportable transaction and related party.
The IRS treats a foreign-owned US disregarded entity as a corporation for specific reporting purposes under section 6038A. This means that the entity can have a Form 5472 filing obligation even when it does not file a standard corporate income tax return.
According to the IRS Form 5472 instructions, the filing must be submitted by the due date of the pro forma Form 1120, including extensions.
Follow this filing checklist
If your US entity received an extension, complete these steps before 15 October:
- Confirm the entity classification. Check whether the US LLC is foreign-owned and disregarded for US tax purposes.
- Review reportable transactions. Include contributions, distributions, payments, loans, reimbursements, and other transactions with the foreign owner or related parties.
- Prepare a pro forma Form 1120. Write “Foreign-owned U.S. DE” across the top.
- Complete Form 5472. A separate form may be required for each relevant related party.
- Check the filing method. Foreign-owned US disregarded entities cannot e-file Form 5472.
- Mail or fax the documents correctly. Use the dedicated IRS filing address or fax number in the current instructions.
- Keep proof of submission. Retain a copy of every form, attachment, fax confirmation, or postal tracking record.
The IRS instructions identify the dedicated filing options as:
Fax: 855-887-7737
Mail:
Internal Revenue Service
1973 Rulon White Blvd
M/S 6112 Attn: PIN Unit
Ogden, UT 84201
Do not use the standard Form 1120 mailing address for this filing.
Understand the financial exposure
Failure to file a complete and timely Form 5472 can result in an initial $25,000 penalty. If the IRS issues a notice and the failure continues for more than 90 days, an additional $25,000 penalty may apply for each 30-day period, or part of a 30-day period, during which the failure continues.
That is why Form 5472 penalties should be treated as an operational compliance risk, not a document to prepare at the last minute.
Example: a UK seller with a US single-member LLC
Suppose you are a UK ecommerce seller operating through a US single-member LLC. The LLC is owned by you or your UK company, and you filed Form 7004 to extend the filing deadline.
Your action plan is straightforward:
- Prepare the pro forma Form 1120.
- Attach the required Form 5472.
- Write “Foreign-owned U.S. DE” across the top of the relevant documents.
- Mail or fax the package using the dedicated IRS instructions.
- Complete the submission by 15 October 2026.
Failing to complete these steps may expose the LLC to the $25,000 initial penalty, even if the business had little or no US taxable income.
Track the revised GloBE Information Return
Treasury also welcomed the revised GloBE Information Return published on 11 September 2026.
The revised framework is relevant to larger cross-border groups and includes a proposed side-by-side safe harbor for US-headquartered companies. The policy is intended to help qualifying US groups remain subject primarily to US global minimum tax rules rather than facing overlapping Pillar Two administration under the Income Inclusion Rule or Undertaxed Profits Rule.
This does not mean every international seller has a GloBE filing obligation. Smaller ecommerce businesses, digital agencies, SaaS companies, and growing SMEs should first establish whether they fall within the relevant group-size and multinational scope rules.
However, larger groups should monitor the revised return, reporting requirements, and implementation guidance carefully. You can review the latest information through the US Treasury international tax resources.
Build a filing-ready compliance process
Do not wait until the deadline week. Use this short review:
- Confirm every US entity’s classification and filing obligations.
- Identify which returns or information forms are still outstanding.
- Reconcile related-party transactions before preparing Form 5472.
- Diarise the 15 October 2026 deadline and the 10 November 2026 comment date.
- Store copies of all submissions and proof of filing.
