USA Tax Update: Senate Finance Reports New Pre-Assessment Appeals Rights for Form 5472 Penalties : What International Sellers Must Know

Sep 18, 2026 | US Updates

TITLE: Proposed U.S. Legislation Could Change How Form 5472 Penalties Are Assessed

A proposed U.S. law could give foreign-owned businesses more time and a formal IRS Appeals route before certain international information-reporting penalties are assessed. It is not law yet.

On 17 September 2026, Senate Finance Committee Chairman Mike Crapo and Ranking Member Ron Wyden announced that the Committee had reported the legislative text of the bipartisan Taxpayer Assistance and Service Act, or TAS Act.

The Committee approved the bill by a 26–1 vote on 30 July 2026. However, the TAS Act has not been enacted. It still requires approval by the full Senate and House of Representatives, followed by presidential signature.

For international sellers, the important provisions are contained in the proposed Fairness in Foreign Filing Act. These provisions would change how the IRS handles certain foreign information-return penalties, including penalties connected with Form 5472.

The proposed change could create a valuable pre-assessment review window

Today, certain international information-reporting penalties can be assessed without a guaranteed right to challenge the proposed penalty through the IRS Independent Office of Appeals before assessment.

The proposed legislation would create a new process for “covered penalties.” These include penalties under:

Section 6038(b)(1)
Section 6038A(d)(1), which covers Form 5472
Section 6038B(c)
Section 6038C(c)
Section 6038D(d)(1)
Section 6039F(c)(1)(B)
Section 6677

If enacted, the IRS would generally need to mail a written notice of proposed assessment before issuing a notice and demand.

The notice would need to identify:

The penalty proposed.
The basis for the penalty.
The relevant tax years or periods.
The taxpayer’s right to request review by IRS Appeals.

The proposed timing is significant:

At least 60 days before notice and demand for a taxpayer in the United States.
At least 120 days before notice and demand where the notice is addressed to a taxpayer outside the United States.
The taxpayer would have the same 60-day or 120-day period to request Appeals review.

During that period, assessment, demand and collection would generally be prohibited. If Appeals review were requested, the restriction would continue until Appeals reached a determination.

The assessment limitation period would also be suspended during the prohibited period, plus 30 days. The proposed rules would not apply where the Secretary determines that collection is in jeopardy.

The Secretary would also receive authority to create simplified Appeals procedures based on designated penalty thresholds.

Form 5472 remains a serious compliance obligation

Form 5472 is an information return. It is not simply an income-tax form.

Under the IRS Form 5472 instructions, the form generally applies to:

A U.S. corporation that is at least 25% foreign-owned.
A foreign corporation engaged in a U.S. trade or business.
A foreign-owned U.S. disregarded entity, including many foreign-owned single-member LLCs.

For tax years beginning on or after 1 January 2017, a foreign-owned U.S. disregarded entity is treated as a corporation for the limited purpose of the section 6038A reporting rules.

The filing obligation concerns reportable transactions with foreign or domestic related parties. These transactions can include:

Owner contributions.
Distributions.
Loans.
Payments for services.
Reimbursements.
Formation, acquisition or dissolution transactions.
Other transactions involving the entity and related parties.

A business can therefore have a Form 5472 obligation even if it has no U.S. sales or taxable profit.

The current penalty can reach $25,000 per form, per year

The IRS international information reporting penalties guidance states that the penalty for failing to file a complete and correct Form 5472 by the due date is $25,000 per failure.

There is no statutory maximum for the Form 5472 penalty. A further $25,000 continuation penalty may apply for each 30-day period after the IRS has issued a notice and the failure continues beyond 90 days.

The penalty can apply where:

Form 5472 was not filed.
Form 5472 was filed late.
The form was substantially incomplete.
The information was materially incorrect.
Required records were not maintained.

This is why a clean filing process matters. A missing related-party payment or inconsistent owner information can create a much larger problem after the deadline.

Foreign-owned LLCs cannot e-file Form 5472

Foreign-owned U.S. disregarded entities must attach Form 5472 to a pro forma Form 1120.

The December 2024 IRS instructions state that foreign-owned U.S. disregarded entities must use the dedicated filing process. They cannot file Form 5472 electronically.

The filing must be submitted by an accepted non-electronic method, such as the specified fax or mailing process. The entity must also use the dedicated IRS address rather than the standard Form 1120 mailing address.

This creates an operational risk for international sellers. A return can be prepared correctly but still fail if it is sent through the wrong channel.

15 October is the immediate deadline for many calendar-year filers

For calendar-year taxpayers, the extended filing deadline is 15 October 2026.

The regular deadline is generally 15 April, with Form 7004 used to request an extension. For a foreign-owned disregarded entity, the extension process relates to the pro forma Form 1120 to which Form 5472 is attached.

With the deadline approaching, use this checklist now:

Confirm every filing year.
Check whether Form 5472 was filed for each relevant year. This will identify missing years before the IRS does.
Reconcile all related-party transactions.
Review contributions, distributions, loans, reimbursements, service payments and other transfers. This creates a complete reporting record.
Check ownership information.
Confirm beneficial-owner names, addresses, tax identification details and ownership percentages.
Check consistency across filings.
Compare Form 5472, the pro forma Form 1120, formation documents, ownership records and other IRS submissions. Consistent data reduces avoidable correspondence.
Confirm the filing method.
Foreign-owned disregarded entities cannot e-file Form 5472. Use the permitted fax or mailing route.
Retain supporting records.
Keep bank statements, payment records, ledgers, agreements and ownership documents. These records support the accuracy of the filing.