IRS IMPOSES REGULATIONS ON FOREIGN-OWNED SINGLE-MEMBER LLCS
by John Gordon | 20:01 GMT
Important Change in How US Treats Foreign-Owned US LLCs
Effective January 1, 2017, Limited Liability Companies (LLCs) formed in any state of the United States or the District of Columbia, which are wholly owned by foreign persons and do not elect to be treated as corporations for tax purposes, will become subject to new IRS reporting requirements. New and existing LLCs will need to obtain an EIN after formation, and to do so will need to designate a Responsible Person. The LLC will need to maintain adequate books and records of transactions to track any payments or transfers of money, property or other reportable transactions between the disregarded entity and its sole member, whether such transactions are direct or indirect. These records must be available for inspection by the IRS upon demand.
Summary of Foreign-Owned Disregarded Entities
Required to obtain an Employer Identification Number (EIN, or federal tax number).
In order to obtain an EIN, the disregarded entity must designate a “responsible person.”
Required to file Form 5472, if there have been any “reportable transactions” during the previous tax year. Formation and dissolution filings are considered to be reportable transactions.
Required to maintain adequate books and records to support the filing of Form 5472, for as many years as necessary, and make them available to the IRS upon demand
The new regulations treat each foreign-owned disregarded LLC as a separate corporation for reporting purposes. Therefore, if one foreign person owns more than one disregarded LLC, each LLC will report individually its reportable transactions. If a disregarded LLC owns another disregarded LLC, by itself, with another disregarded LLC or with the foreign person, each of these LLCs are considered separate and must report separately.
The new regulations do NOT create a new tax obligation. Single member LLCs remain disregarded for income tax purposes. Form 5472 is an Information return for tax purposes, and as such is not publicly available.
