Canadian With a US LLC? You Owe the IRS Form 5472

You formed a U.S. LLC. Maybe a Wyoming entity to accept USD payments, run a Shopify store, or keep your freelance income separate from your Canadian business. Your formation company got you set up, you opened a U.S. bank account, and everything's running smoothly.

Except you haven't filed Form 5472. And the IRS penalty for that is $25,000 per year.

What Is Form 5472 and Why Does It Apply to Canadians?

If you're a Canadian resident who owns a U.S. single-member LLC, the IRS classifies your entity as a "foreign-owned U.S. disregarded entity." That triggers an annual filing requirement — Form 5472 paired with a pro forma Form 1120.

It doesn't matter that:

• Your LLC had no U.S. income
• You already filed your Canadian T1 or T2
• Your LLC is dormant
• The only money that moved was your initial capital contribution

The IRS wants to see every transaction between you and your LLC. The $500 you wired to open the bank account? Reportable. The registered agent fee you paid out of pocket? Reportable. The profit distribution you pulled back to your Canadian account? Reportable.

These transactions go in Part V of Form 5472 for disregarded entities. If any category totals $50,000 or less, you can use simplified reporting instead of exact amounts.

The Canada-U.S. Tax Treaty Doesn't Save You (The most common myth)

This is the most common misconception I hear from Canadian clients. "Canada has a tax treaty with the U.S., so I'm covered."

The treaty helps with income tax — it can reduce or eliminate withholding on certain types of income and prevent double taxation. That's great. But it does absolutely nothing for Form 5472. The filing requirement exists under IRC Section 6038A, which is an information reporting provision. Treaties don't override it.

You could owe zero U.S. tax and still owe $25,000 in penalties for not filing the information return.

How Canadian LLC Owners Typically Get Caught

Scenario 1: The CRA tips off the IRS. Canada and the U.S. share tax information under the Convention on Mutual Administrative Assistance and FATCA. If you're reporting U.S. LLC income on your Canadian return but the IRS has no matching Form 5472 on file, that discrepancy can trigger a review.

Scenario 2: The EIN trail. You applied for an EIN. The IRS knows your LLC exists. They know it's foreign-owned. Their compliance algorithms flag entities with EINs that haven't filed any returns.

Scenario 3: Your bank reports it. U.S. bank accounts held by entities with foreign owners trigger reporting. The information flows to the IRS.

It's not a question of if they find out. It's when.

What About CRA Reporting?

This goes both ways. As a Canadian tax resident, you likely have CRA obligations related to your U.S. LLC:

• T1134 — Foreign Affiliate Information Return (if applicable)
• T1135 — Foreign Income Verification Statement (if your U.S. assets exceed CAD $100,000)
• Report U.S. LLC income on your T1 or T2 return

Form 5472 is the U.S. side of this equation. CRA reporting is the Canadian side. You need both. One doesn't replace the other.

The $25,000 Penalty Is Real

I've seen Canadian clients get hit with this. A consultant in Toronto formed a Wyoming LLC in 2023 to invoice U.S. clients. His Canadian accountant handled the T1. Nobody mentioned Form 5472. Two years later — $50,000 in IRS penalties.

The penalty is per form, per year:

• 1 year missed: $25,000
• 2 years: $50,000
• 3 years: $75,000

If the IRS sends a notice and you don't respond within 90 days, they add another $25,000 every 30 days. No cap.

If You're Behind — Fix It Now

If you haven't filed, use the IRS's Delinquent International Information Return Submission Procedures. Come forward before they come to you. Prepare the missing forms, attach a reasonable cause letter explaining that your formation company or Canadian accountant never informed you of the requirement, and submit to the correct IRS address.

Voluntary disclosure before IRS contact dramatically increases your chances of getting the penalty waived.

Filing Mechanics for Canadians

Form 5472 can't be e-filed. You have to mail or fax it with a wet-ink signature — no electronic signatures accepted.

Due date: April 15 for calendar-year LLCs. Need more time? File an extension before April 15 to push it to October 15.

Fax: 855-887-7737

Mail: Internal Revenue Service, 1973 Rulon White Blvd, M/S 6112, Attn: PIN Unit, Ogden, UT 84201

Keep your fax confirmation or mailing receipt. That's your proof of timely filing.

Who Counts as a Related Party?

You do — as the Canadian owner. But it doesn't stop there. Your spouse, children, parents, and siblings may also be related parties if they have any involvement with the LLC. The 50% ownership threshold can pull in more people than you'd expect.

If your Canadian corporation owns the U.S. LLC — or if you own both a Canadian corp and a U.S. LLC — the related party analysis gets more complex. Each related party with reportable transactions needs a separate Form 5472.

How MyFreeTaxAmerica.com Helps

MyFreeTaxAmerica.com was built for exactly this situation — foreign owners of U.S. LLCs who need to file Form 5472 without paying $1,500 to a CPA.

The software walks you through every section, generates the pro forma Form 1120, and flags errors before you submit. A simple Excel bookkeeping template can help you track transactions throughout the year so filing takes 30 minutes instead of a weekend.

Our Premium Package ($149) includes a full professional review, a reasonable cause letter if you're filing late, IRS e-fax submission, and audit assistance. Check our FAQ for the basics or go straight to filing.

The penalty is $25,000. The fix is $149. Your Canadian accountant probably charges more than that for a phone call.

This article is for informational purposes only and does not constitute tax or legal advice. Canadian and U.S. tax obligations vary by individual circumstances. Consult with a qualified cross-border tax professional regarding your specific situation.