Enhanced IRS Obligation for Reporting in Domestic Limited Liability Companies with Overseas Ownership
Foreign-Owned U.S. LLCs Face New Tax Reporting Requirements
Foreign individuals who own Limited Liability Companies (LLCs) in the United States now face new tax reporting requirements, effective from January 1, 2017. These changes aim to prevent tax evasion and close loopholes in the tax code.
Employer Identification Number (EIN) and Form 5472
Every foreign-owned U.S. LLC must obtain an EIN to transact with the Internal Revenue Service (IRS), pay taxes, and open bank accounts in the U.S. This requirement applies even if the LLC has no employees.
Foreign-owned single-member LLCs classified as disregarded entities must file Form 5472, which discloses reportable transactions with the foreign owner or related parties. This form must be filed together with a pro forma Form 1120 (U.S. Corporation Income Tax Return), which only requires completing basic information like the LLC’s name, address, EIN, and checking applicable boxes (e.g., "Initial return").
Reportable Transactions and Financial Records
"Reportable Transactions" include any exchange of money or property between the LLC and its foreign member, as well as the performance of any services. The LLC must maintain accurate books and records supporting the information reported on Form 5472, detailing all reportable transactions with related parties to avoid IRS penalties.
Deadlines and Penalties
The filing deadline for Form 5472 (alongside Form 1120) is generally April 15 for calendar-year entities, with extensions possible. Failure to file or maintain adequate records can result in significant IRS penalties. The earliest Forms 5472 required would be due in early 2018.
Additional Tax Filing
Depending on the foreign owner’s tax status and U.S. source income, there may be additional filing obligations such as Form 1040NR (Nonresident Alien Income Tax Return) and obtaining an ITIN. However, not all foreign-owned LLCs have this requirement.
In summary, foreign persons forming LLCs in the U.S. must secure an EIN and comply with IRS rules requiring Form 5472 and related filings to disclose foreign ownership and reportable transactions. This ensures transparency and compliance with U.S. tax laws for foreign-owned disregarded entities.
It is essential to note that these requirements apply to physical individuals, not companies, and that LLCs formed in the U.S. are subject to both federal and state levels of taxation. The IRS treats each foreign-owned disregarded LLC as a separate corporation for reporting purposes.
These new requirements do not apply to popular social media platforms such as Facebook, Twitter, Pinterest, LinkedIn, or any other digital communication platforms. The article does not provide information about penalties for failure to file Form 5472 or the definition of "reportable transactions."
- every foreign-owned U.S. LLC needs to obtain an Employer Identification Number (EIN) for transacting with the Internal Revenue Service (IRS), paying taxes, and opening bank accounts in the U.S.
- foreign-owned single-member LLCs classified as disregarded entities must file Form 5472, which discloses reportable transactions with the foreign owner or related parties.
