By Vincenzo Villamena, CPA
Are you a non-US person with a US LLC? Then you need to be aware of the US tax reporting requirement for a foreign-owned LLC, IRS Form 5472.
Before 2017, foreign-owned single-member LLCs enjoyed an exemption from US tax reporting requirements. Starting with the 2017 tax year, however, LLCs that are wholly owned by foreign persons and did not elect to be treated as corporations for tax purposes, are subject to IRS reporting requirements.
Foreign-owned LLCs must file Form 5472 Information Return. The deadline is April 15 for LLCs that use the calendar year.
While this reporting requirement presents a major hassle for foreign owners, it does not create a new tax obligation.
Who must file Form 5472?
This filing requirement applies to all single-member LLCs owned by a non-US person with “reportable transactions”.
Furthermore, even if one person owns multiple LLCs, each LLC must comply separately. We explain this in more detail in this newer post about Form 5472.
What is a reportable transaction?
The IRS defines a “Reportable Transaction” very broadly.
Basically, it includes any type of activity between a foreign owner and the LLC.
- Exchange of money or property, including payments, capital contributions, and capital reductions.
- Using LLC property, such as real estate, by the foreign owner or related party.
- Loans and/or interest payments between the LLC and a foreign owner.
Interestingly, the IRS does not give a monetary threshold. This means, even a transaction of a minimal amount would trigger the reporting requirement.
Foreign-owned LLC IRS reporting – Step by step
Here are the steps to take for complying with the IRS reporting requirement:
- Obtain an EIN for the LLC from the IRS using form SS-4. (You must designate a responsible party for this.)
- Identify “reportable transactions” between the LLC and other parties, including the foreign owner of the LLC.
- File IRS Form 5472 Information Return.
- Keep a profit & loss statement and records of transactions to support Form 5472. The IRS may request those.
Let’s look at those steps in more detail
Each foreign-owned LLC now must have an EIN (Employer Identification Number) and designate a Responsible Party. The Responsible Party for a single-member LLC is usually the owner of the LLC. It is the person with “control” over the company. The Responsible Party must provide his or her SSN, ITIN or EIN when filling out Form SS-4 to obtain the EIN for the business.
You must identify all reportable transactions between the LLC and other parties and report those on Form 5472 Information Return.
In addition, the LLC must keep records of all reportable transactions as well as a profit & loss statement to support the information provided in Form 5472. While those are not included in the actual filing, the IRS may request to see them.
Unsure if you need to file?
If you are unsure if you have reportable transactions and need to file Form 5472, contact a specialist.
Failure to file carries a stiff penalty of $10,000. The penalty also applies to the failure of maintaining the required records.
If in doubt, it would be better to file Form 5472 to avoid a potential penalty.
Need help with these reporting requirements for your foreign-owned LLC? Contact us at firstname.lastname@example.org.