You paid every penny of tax. The penalty is still $10,000

Figures relate to tax year 2025-26 (UK) · 2025 (US)

A client arrives with eight years of returns, every figure correct and every dollar paid. There is nothing to confess and nothing to collect.

Then we ask about the British company she runs from her kitchen table. Nobody ever filed a form for it.

That single omission can carry a $10,000 charge for each year it ran. Information returns sit in their own penalty world, detached from whether you owed any tax at all.

Key takeaways

• Penalties on information returns attach to missing forms, not to unpaid tax.
• A dedicated procedure exists for filers who owe nothing.
• Each late form needs its own reasonable cause statement.
• Streamlined filing is the route where income went unreported.
• Foreign bank reports follow a separate submission process.
• An unfiled form keeps the whole year open indefinitely.
• Filing late voluntarily beats waiting for a notice.

What are information returns?

Forms that tell the IRS about something you hold or receive abroad, rather than about tax you owe. They cover foreign companies, partnerships, trusts, large gifts and certain investments. The IRS wants visibility, so the duty to file them stands whether or not any tax arises.

That design explains the penalties. If there is no tax to attach a percentage to, the law uses a flat figure instead.

For 2025 the headline figure for a missed company form remains $10,000 per form per year.

Which forms catch Americans in Britain?

Among the information returns the company form is the big one, because a limited company is an ordinary way to work in Britain. Trust forms catch pension oddities and family arrangements. Partnership forms catch members of a limited liability partnership, and a separate form catches large gifts from relatives abroad.

Our guide to the Form 5471 filing categories sets out who counts as a shareholder.

In our practice the company form and the gift form account for most of the trouble.

What is the delinquent procedure?

A route for filers who reported all their income and paid all their tax but missed the information returns behind it. You file the late forms with a statement explaining why, and the IRS considers whether reasonable cause applies. According to IRS guidance on the procedures, no penalty follows where it does.

There is no application and no acceptance letter. You simply file correctly and explain yourself.

Silence afterwards is the usual outcome, and it is a good one.

A worked example

Take an illustrative example. An American in Edinburgh has run a small consultancy through a British company since 2019.

She declared the salary and dividends on every American return and paid the tax due. Nobody told her the company itself needed reporting.

Six missing information returns at $10,000 each come to $60,000 of exposure. None of it relates to unpaid tax.

She files the six forms with a reasonable cause statement setting out the advice she received and the steps she took once she knew.

The three routes compared

How do you choose between the routes?

Start with one question: did any income go unreported? If the answer is no, the delinquent procedure fits and the streamlined route is unnecessary. If even a small amount of interest went missing, streamlined filing becomes the safer option.

People underestimate how often a forgotten savings account changes the answer.

Our guide to the streamlined domestic procedures explains the alternative.

What does reasonable cause actually mean?

Ordinary business care and prudence, judged on your facts rather than against a checklist. Reliance on a professional who never asked the right questions can qualify. Simply not knowing about a form rarely does on its own, though it helps alongside other facts.

Write the statement as a narrative, with dates and names.

Our guide to reasonable cause penalty relief covers how the standard is applied.

Does each form need its own statement?

Yes, and this trips people up. A single covering letter for eight years of forms gives the IRS a reason to reject the lot. Attach a statement to every delinquent return, tailored to that form and that year, even where the facts repeat.

Repetition is fine. Omission is not.

Keep the statements consistent, because inconsistency between years invites questions.

What about foreign bank reports?

Those sit outside the information returns procedure entirely and follow their own route. You file the late reports electronically and select a reason for the delay from a list. No separate statement is needed, though the position should match whatever you say elsewhere.

Our guide to delinquent FBAR submissions sets out the mechanics.

Doing both in the same week keeps the story coherent.

Why does an unfiled form keep the year open?

Because the assessment period for the whole return does not start until the missing form arrives. A year from 2015 with an unfiled company form is still open today. Filing it starts a three year clock that otherwise never begins.

That rule is the strongest practical argument for filing late rather than hoping.

An open year exposes every item on the return, not only the foreign one.

Are penalties assessed automatically?

For some forms they have been, which is why late filing felt so dangerous. The system assessed a penalty on receipt and left you to argue afterwards. The IRS announced in late 2024 that it would stop doing that for certain foreign gift reports and consider reasonable cause first.

Company and partnership forms still carry the automatic risk in practice.

So the quality of the statement matters more for those.

What if a penalty arrives anyway?

You challenge it, and plenty are reduced or removed on review. The first step is usually a written response restating reasonable cause with supporting documents. Appeals exist beyond that, and the process can run for a year or more.

Do not pay a penalty simply because a notice looks final.

In our practice first notices are frequently wrong about the facts.

Does the procedure cover every missing form?

It covers international information returns, which is where the serious figures live. Domestic information returns follow different rules. Forms attached to the return itself, such as the foreign asset statement, generally get fixed through an amended return instead.

That distinction matters because the submission address differs.

Sending a form to the wrong service centre costs months.

What if the IRS already contacted you?

Then the delinquent information returns route closes, because it is only available before an examination begins. A notice about the specific year or form removes the option. Other paths remain, though they are slower and less forgiving than filing voluntarily.

Timing is therefore the whole game.

Clients who wait a season often lose the easiest route available to them.

Does a British company always need reporting?

Almost always where an American controls it, and often where they simply hold shares. The categories are wider than people expect, and they catch dormant companies too. A company with no trade and no profit still produces a reportable position.

Striking the company off does not erase the earlier years.

Our guide to company strike off and US tax covers the closing position.

How long does it take?

Preparation is the slow part, because the information returns rest on old company accounts and trust statements. Filing itself is quick once the papers exist. After submission most clients hear nothing, which means the position held.

Allow two to three months for a straightforward set.

Complex group structures take considerably longer.

Does a UK pension produce information returns?

Usually not, because most workplace and personal pensions in Britain escape the foreign trust forms under long standing practice. Unapproved arrangements and certain offshore bonds are the exception. The analysis depends on the scheme documents rather than the name on the statement.

Our guide to US retirement accounts and UK pensions covers the mainstream position.

Where a scheme sits outside the usual approvals, get the deed read before assuming anything.

What about a gift from a parent abroad?

A gift from a non-American relative is not taxable, yet it still needs reporting once it passes the threshold. That mismatch catches people hard, because nothing felt like a tax event at the time. A house deposit from parents in Britain is the classic case.

The penalty runs as a percentage of the gift rather than a flat figure.

Our guide to Form 3520 and foreign gifts covers the thresholds.

Can your accountant's error help you?

It can form part of the reasonable cause case, provided you gave the adviser the facts. A preparer who knew about the British company and filed nothing is a stronger argument than one who was never told. Engagement letters and emails carry real weight here.

Keep the correspondence rather than paraphrasing it later.

In our practice the clients with email trails do noticeably better.

Does the procedure cost much?

The filings themselves carry no fee, so the cost is professional time rather than anything paid to the IRS. Reconstructing company accounts for old years drives most of it. A straightforward set of information returns is far cheaper than defending a single penalty.

Budget for the accounts work rather than the forms.

That ratio surprises people who expect the opposite.

What records should you keep?

Keep a copy of every late form, the statement attached to it and proof of posting. Those three items are your evidence that you filed voluntarily, which is the point the whole procedure turns on.

Also keep the correspondence that shows when you learned of the duty.

That timeline supports the reasonable cause narrative years later.

How to file delinquent information returns

1. Confirm that every year of income was fully reported.
2. List each missing form and the years it applies to.
3. Gather the accounts and statements behind each one.
4. Prepare the forms to the standard of an on time filing.
5. Write a reasonable cause statement for every form.
6. Attach the statement and file to the correct address.
7. File any late foreign bank reports in the same period.
8. Keep proof of posting and diarise a review in six months.

Mistakes and penalties we see with information returns

The first is one covering letter for everything. Each form needs its own statement.

The second is choosing this route when income went unreported. That is a streamlined case, and using the wrong procedure wastes the protection.

The third is assuming a dormant company needs nothing. Dormancy changes the figures, not the filing duty.

The fourth is waiting. For 2025 the company form penalty remains $10,000 per year, and an examination removes the voluntary route entirely.

How US UK Tax Accountants helps

We work out first whether anything went unreported, because that single answer picks the route. Then we build the forms and write statements that set out the facts properly rather than reciting a template.

Where penalties have already landed, we take them on. Our streamlined filing service covers the cases where income was missed as well.

If you run a British company and have never filed a form for it, get in touch before a notice arrives.

Last reviewed 15 October 2026. This article is general information and not personal tax advice. Disclosure routes turn on precise facts, so take advice on yours.

For the neighbouring question, The penalties are waived. The interest has been running since 2019 walks through it in detail.