What the IRS Can Ask For: Form 5472 Records and § 1.6038A-3

The $25,000 penalty attaches to two separate failures: not filing Form 5472, and not maintaining the records the regulation requires. A perfectly prepared form sitting above an empty folder is still exposed. Treas. Reg. § 1.6038A-3 says what to keep, and the Form 5472 instructions tie the same penalty to keeping it.

Most owners of a foreign-owned US LLC treat Form 5472 as a filing problem: file it, keep the fax receipt, done. The regulation behind it treats it as a records problem with a filing attached — and the penalty text follows the regulation.

We prepare and fax the complete package from $149, and the first thing we ask for is the documents behind the numbers — which is what the regulation makes you keep.

Does the $25,000 penalty really apply to records as well as to the form?

Yes. The IRS Instructions for Form 5472 state: "A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3."

Two sentences, two failures, one amount. The second is the one almost nobody reads: the $25,000 is not a late-filing fee but the penalty for missing the § 6038A regime, and that regime has a records half.

The instructions add that where a failure continues more than 90 days after IRS notification, "an additional penalty of $25,000 will apply," per related party for each 30-day period it continues, and that criminal penalties under sections 7203, 7206 and 7207 may also apply.

A penalty already assessed is a separate problem with its own response window: see the Form 5472 penalty notice guide.

What does Treas. Reg. § 1.6038A-3 actually require you to keep?

It requires permanent books and records sufficient to establish the correctness of the return, including anything relevant to related-party treatment. Paragraph (a)(1) requires a reporting corporation to "keep the permanent books of account or records as required by section 6001 that are sufficient to establish the correctness of the federal income tax return of the corporation," including records "to the extent they may be relevant to determine the correct U.S. tax treatment of transactions with related parties."

That is a sufficiency test, not a list of forms: could a reviewer, working only from the file, establish that the reported treatment was right?

Paragraph (a)(2) then offers a safe harbor. A corporation that maintains "the records listed in paragraph (c)(2) of this section that may be relevant to its foreign related party transactions and to its business or industry will be deemed to have met the record maintenance requirements of section 6038A."

That qualifier matters: several of the six categories in paragraph (c)(2) were drafted for large multinational groups, and will be thin or empty where the only related party is the owner.

§ 1.6038A-3(c)(2) category	What it looks like for a one-owner LLC
(i) Original entry books and transaction records	Bank statements, cancelled checks, the ledger, invoices, contracts, workpapers
(ii) Profit and loss statements	A simple annual P&L
(iii) Pricing documents	Support for the rate the LLC paid the owner or an owner-controlled company for services
(iv) Foreign country and third party filings	Home-country filings describing the same transfers
(v) Ownership and capital structure records	A one-page chart naming the owner, the LLC and any other company the owner controls
(vi) Loans, services and other non-sales transactions	Owner-loan notes, interest schedules, service agreements

Can a small LLC use the small-corporation exception to skip the records rule?

No — and this is the trap. Treas. Reg. § 1.6038A-1 contains two escapes from the record-maintenance rules, and both expressly exclude the kind of entity a foreign-owned US LLC is.

Paragraph (h) reads: "A reporting corporation (other than an entity that is a reporting corporation as a result of being treated as a corporation under § 301.7701-2(c)(2)(vi) of this chapter) that has less than $10,000,000 in U.S. gross receipts for a taxable year is not subject to §§ 1.6038A-3 and 1.6038A-5 for that taxable year." The de minimis exception in paragraph (i) carries the identical parenthetical for related-party payments of "not more than $5,000,000" that are also under 10 percent of US gross income.

The parenthetical is the whole story. Section 301.7701-2(c)(2)(vi), headed "Special rule for reporting under section 6038A," treats a domestic disregarded entity solely owned by one foreign person as a separate corporation for § 6038A purposes — the reason the LLC files Form 5472 at all. The rule that pulls the LLC into the regime is the rule denying it size-based relief.

So a dormant LLC with $0 of gross receipts gets no size-based pass on § 1.6038A-3. Both paragraphs also confirm that an exempt corporation "remains subject to … the general record maintenance requirements of section 6001."

Which document evidences which reportable transaction?

Match the document to the transaction type: a bank line proves cash moved and little else. Audit your own folder against the middle column.

Reportable transaction	Documents that evidence it	What makes it adequate
Owner sends money in as a contribution	LLC bank line showing the credit; the owner's sending-account statement or wire confirmation; a dated memo classifying it as contributed capital	Both sides of one movement, same date and amount, plus a contemporaneous note of intent. A credit alone does not show who sent it, or why
Owner lends money to the LLC	Signed note stating date, principal, interest rate or an express no-interest term, and repayment terms; bank lines for the advance	A note dated at or before the advance, with terms the later payments actually follow
LLC repays owner-loan principal	Bank line; a running balance schedule tied to the note	Principal split from interest; the balance after each payment reconciles to the note
LLC distributes money to the owner	LLC bank line; ledger entry or owner resolution classifying it as a distribution	Classified when paid, not reconstructed later. "Transfer" is not a classification
Owner pays an LLC cost on a personal card	Vendor invoice or receipt in the LLC's name; the owner's card statement line; an expense report linking them; the reimbursement bank line	The invoice names the LLC, the card names the owner — the pair is the proof, carried by one reference
LLC pays the owner for services	Invoice describing the work and period; a written services agreement; bank line; support for the rate	Services actually described, and an agreement predating the invoice — the (c)(2)(iii) pricing documents
LLC pays a foreign company the owner controls	Invoice; intercompany agreement; ownership chart	The chart proving the counterparty is a related party, not a vendor
Owner contributes property in kind	Assignment or transfer document; valuation support; asset-register entry	A dated valuation stating its method, not a round number
Any of the above in a non-USD currency	An exchange-rate schedule: the rate, its published source, the date applied	One named source, one method, all year — see currency conversion

The three mislabelled most often are set out in owner loans and contributions.

How long does § 1.6038A-3 say records must be kept?

The regulation gives no number of years. Paragraph (g), headed "Period of retention," states that records "shall be kept as long as they may be relevant or material to determining the correct tax treatment of any transaction between the reporting corporation and a related party, but in no case less than the applicable statute of limitations on assessment and collection with respect to the taxable year in which the transaction or item to which the records relate affects the U.S. tax liability of the reporting corporation."

A relevance test with a floor, then, rather than a fixed term. A document stays required while it is still material, so an owner loan advanced in 2022 and repaid in 2029 keeps its note relevant across all of those years. The floor moves with the limitations period for the year the item affected US tax liability — a question about your own years. We do not compute a limitations period for anyone, and a qualified adviser should set the LLC's retention policy on its actual facts. The working rule: keep it while it can still matter.

What happens when the records are outside the United States?

The default is US maintenance, with an express alternative for records held abroad — the normal position for a non-resident owner. Paragraph (f)(1) provides that records "must be maintained within the United States, unless the conditions described in paragraph (f)(2) of this section are met," and (f)(2) permits a corporation to "maintain outside the United States records not ordinarily maintained in the United States."

The conditions are deadlines that start when the IRS asks. Under (f)(2), a corporation keeping records abroad must do one of two things after a request by the Service:

Deliver the original documents or duplicates requested within 60 days of the request, and provide translations of specific documents within 30 days of a translation request; or
Move the originals or duplicates to the United States within 60 days of the request, supply within the same 60 days an index plus the name and address of a US custodian having control over them and the US address where they are held, and keep them in the United States.

For material profit and loss statements, 120 days substitutes for 60 days.

Sixty days is the figure to plan around. A folder that is complete, named and in one place is answerable in an afternoon. A folder rebuilt from three banks and two closed payment platforms is not, and the clock does not pause while anyone searches.

What should you do before any request arrives?

Build the file in the year the transactions happen. One routine at year end:

List every movement between the LLC and the owner, or the LLC and any company the owner controls, for the year.
Classify each — contribution, distribution, loan advance, loan repayment, owner-paid cost, payment for services — and write that classification where the entry lives.
Attach the evidencing document to each classified entry, naming the file so entry and document find each other.
Record the exchange rate, its source and the date for anything not in USD.
Save the filed package and its delivery evidence in that year's folder.

The folder-by-folder build is set out in the Form 5472 recordkeeping checklist, which includes a downloadable example ledger.

Source note: we read § 1.6038A-3 on the Legal Information Institute's CFR text at Cornell Law School on 3 October 2026, because the eCFR copy redirected to an access interstitial.

Frequently asked questions

Can the IRS penalise me if I filed Form 5472 correctly but kept no records?

The instructions state the $25,000 penalty "also applies for failure to maintain records as required by Regulations section 1.6038A-3." Whether it is asserted in a given case depends on facts we cannot assess. The records exposure is separate from the filing exposure.

Does § 1.6038A-3 name the number of years to keep records?

No fixed term is stated. Paragraph (g) requires records be kept as long as they may be relevant or material to a related-party transaction, and in no case less than the applicable statute of limitations for the year affected.

My LLC earns well under $10 million — does the small corporation exception help?

No. The exception in § 1.6038A-1(h) excludes entities that are reporting corporations because of § 301.7701-2(c)(2)(vi) — the rule making a foreign-owned US disregarded entity a reporting corporation in the first place.

Are bank statements enough on their own?

Generally no. A statement line evidences that cash moved on a date for an amount. It usually does not evidence the counterparty's identity or the character of the transfer, which is what related-party treatment turns on.

Must the records be held in the United States?

Paragraph (f)(1) sets US maintenance as the default. Paragraph (f)(2) permits records not ordinarily maintained in the US to be held abroad, provided they are delivered or moved to the US within 60 days of an IRS request.

Can you reconstruct my records for past years?

No. We prepare and deliver the package from the records and figures you provide. We are not a CPA firm and do not give tax advice; a qualified tax accountant reviews each package before it goes out.

The bottom line

The regulation makes records the substance and the form the summary. Keep the documents that let a reviewer trace each reported related-party amount to its source, keep them while they can still matter, and keep them reachable inside 60 days. Then start your Form 5472 package.

Educational content only; not tax or legal advice.