By Vincenzo Villamena, CPA
Are you a non-US person with a US LLC? Then you need to be aware of the major new US reporting requirement for foreign-owned LLCs. The deadline is coming up soon.
Previously, 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 new IRS reporting requirements.
Foreign-owned LLCs now must file Form 5472 Information Return. The deadline is April 15 for LLCs that use the calendar year.
While this new reporting requirement presents a major hassle for foreign owners, it does not create a new tax obligation.
Who has to file Form 5472
This new filing requirement applies to all single-member LLCs owned by a non-US person with “reportable transactions”.
Furthermore, each disregarded LLC has to comply separately with these new requirements, even when they have the same owner.
What is a reportable transaction of a foreign-owned LLC
The IRS defines a “Reportable Transaction” very broadly.
Basically, it includes any type of activity between a foreign owner and the LLC, for example:
- The exchange of money or property, including payments, capital contributions and capital reductions
- The use of LLC property, such as real estate, by a 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. Therefor even a transaction of a minimal amount would trigger the new reporting requirement.
New reporting requirements for foreign-owned LLCs – Step by step
- If the LLC doesn’t already have an EIN, then designate the responsible party and obtain an EIN for the LLC from the IRS using form SS-4.
- Identify “reportable transactions” between the LLC and other parties, including the foreign owner of the LLC.
- File Form 5472 Information Return.
- Keep a profit & loss statement and records of transactions to support Form 5472 and make those available to the IRS if requested.
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’s 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.
All reportable transactions between the LLC and other parties need to be identified and reported in Form 5472 Information Return. In addition the LLC needs to keep records of all reportable transactions as well as a profit & loss statement that support the information provided in Form 5472. While those are not included in the actual filing, they need to be made available if the IRS wants 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 new reporting requirements for your foreign-owned LLC?