Foreign Owners of US LLC – Don’t Forget to File 2017 Informational Returns by 17 April 2018
17 April 2018 is the deadline to file the Form 5472 for foreign owned LLC
During the last 20 years a number of foreigners created US Limited Liability Companies in States like Delaware, Wyoming, Nevada to name just a few. The reasons behind varied, but the key was that there was no tax filing requirement as for the vast majority, these LLC entities were fiscally transparent, i.e. disregarded for US tax purposes. This however is not the case anymore.
New for 2018:
Beginning this year, the foreign owners of US LLC's are required to file an informational return Form 5472 in addition to reporting any US sourced income earned throughout the tax year. The informational disclosure is required even if the LLC is dormant or has no US earned income. It is the mere existence of a foreign owned US entity that triggers the reporting requirement.
It was back in December 2016, when the IRS issued Treas. Reg. §1.482-1(i)(7) targeting foreign owned disregarded entities. Under the new regulation, beginning with year 2017, virtually all US owned LLC’s are required to file informational return Form 5472 “Information Return of a 25% Foreign-Owned Corporation or a Foreign Corporation”.
Failure to file Form 5472:
The IRS may assess a penalty of $10,000 if the Form 5472 is filed late or not filed at all. This could potentially impact thousands of individuals around the world. Therefore, it is important for owners of US LLC's to act quickly and make sure they file the form with the IRS on time.
The following businesses are the most likely to use a US LLC and therefore a potential target for the IRS:
- Nonresidents with us rental property held through an LLC.
- Nonresidents receiving US royalty income or who sell merchandise online through platforms like Amazon, and who have set an LLC in order to obtain a US Employer Identification Number (EIN).
- Nonresidents with an inactive/dormant US LLC, or those using the LLC to invoice US based clients for services performed outside the US.
If you think that the situation described above relates to you, or if you would like to discuss reporting requirements of a foreign owned US Limited Liability Company, we are here to assist. Get in touch with your Taxential advisor now!
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Disclaimer: The content of this page does not constitute legal advice, and should not be relied upon for tax avoidance purposes. The facts and circumstances specific to your situation are the ones that ultimately determine the application of the rules. The text above is based on Taxential's interpretation of the US tax law from a general perspective only.