Foreign LLCs Owned by Non-Americans Now Face Stricter Reporting Obligations Via the IRS
Foreign-owned Limited Liability Companies (LLCs) formed in the U.S., effective from January 1, 2017, are now subject to updated reporting requirements by the Internal Revenue Service (IRS). This topic has caused confusion, with conflicting answers from the IRS itself regarding the taxation of foreign-owned LLCs.
For LLCs formed by foreign persons, the new regulations treat each foreign-owned disregarded LLC as a separate corporation for reporting purposes. An "Disregarded Entity" is an entity that exists for legal purposes but not for income tax purposes. An LLC, formed under the laws of one of the states or the District of Columbia, which has not elected to be treated as a corporation, is automatically treated as a disregarded entity.
The Federal Employer Identification Number (EIN or FEIN) is a unique nine-digit federal tax identification number assigned by the IRS to business entities in the United States. At the federal level, LLCs are considered a "transparent tax entity" for taxation purposes. However, foreign-owned LLCs are now required to obtain an EIN.
New and existing LLCs must file Form 5472 if there have been any "reportable transactions" during the previous tax year. "Reportable Transactions" are defined by the IRS as any exchange of money or property between the LLC and its foreign member, among other things. The purpose of Form 5472 is to disclose reportable transactions between the foreign-owned LLC and related parties to prevent tax evasion.
A foreign-owned single-member LLC must obtain an EIN immediately after formation. The LLC must file Form 5472 and Form 1120 annually by April 15 (extensions possible with Form 7004). Form 5472 reports all reportable transactions with the foreign owner or related parties. The LLC must keep detailed books and records documenting these transactions.
Depending on income and tax treaties, the foreign owner may also need to file Form 1040-NR and obtain an Individual Taxpayer Identification Number (ITIN). Multi-member LLCs owned by foreign persons generally file Form 1065 if treated as partnerships.
Penalties for failure to timely file Form 5472 or maintain required records are severe, typically starting at $25,000 per failure, with additional penalties for continued non-compliance. It's important to note that if Form 5472 is submitted on time but is incomplete or inaccurate, it is considered late and subject to the $10,000 penalty.
In summary, foreign-owned U.S. LLCs must promptly get an EIN, file Form 5472 and Form 1120 as required, maintain comprehensive financial records, and comply with additional individual filing requirements. Failure to do so may result in substantial IRS penalties.
This article does not discuss Facebook, Messenger, Twitter, Pinterest, LinkedIn, Whatsapp, or Email being related to the IRS reporting requirements for LLCs. It also does not provide information about Sergei Tokmakov being related to the IRS reporting requirements for LLCs.
- Businesses formed by foreign persons, specifically foreign-owned LLCs, are now required to obtain a Federal Employer Identification Number (EIN) for reporting purposes, as they are considered separate corporations with updated reporting requirements under the Internal Revenue Service (IRS).
- In regards to the finance aspect, foreign-owned LLCs must comply with various reporting requirements, including filing Form 5472 to disclose reportable transactions, as well as Annual Reporting (Form 1120) and maintaining detailed financial records, to prevent potential tax evasion and avoid severe IRS penalties.
