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More IRS reporting for foreign LLC owners

first posted: 2017-11-01 14:34:38.263797

IRS Imposed additional requirement on foreign-owned SMLLC from 2017

For US owners, the default choice is to have their LLC disregarded for tax purpose. This is no longer the case for foreign owners. Even if you LLC is disregarded for tax purpose, you need to file documents and keep records as the US wants to be able to implement information sharing with your home jurisdiction.

Here is some deep background on recordkeeping and reporting requirement on SMLLC with a foreign owner that apply from the fiscal year 2017.

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IRS Requirements Summary

The following information was retrieved from this link in November 2017.

New and existing LLCs will need to obtain an EIN after formation, and to do so will need to designate a Responsible Person. The LLC will need to maintain adequate books and records of transactions to track any payments or transfers of money, property or other reportable transactions between the disregarded entity and its sole member, whether such transactions are direct or indirect.

Here are a few more details on the requirements:

  • Required to obtain an Employer Identification Number (EIN, or federal tax number). In order to obtain an EIN, the disregarded entity must designate a “responsible person.”
  • Required to file Form 5472, if there have been any “reportable transactions” during the previous tax year. Formation and dissolution filings are considered to be reportable transactions.
  • Required to maintain adequate books and records to support the filing of Form 5472 (instructions), for as many years as necessary, and make them available to the IRS upon demand
  • The new regulations treat each foreign-owned disregarded LLC as a separate corporation for reporting purposes. Therefore, if one foreign person owns more than one disregarded LLC, each LLC will report individually its reportable transactions. If a disregarded LLC owns another disregarded LLC, by itself, with another disregarded LLC or with the foreign person, each of these LLCs is considered separate and must report separately.

Owner contribution and owner draw are reportable transactions although they need to be reported separately of form 5472 as they are disregarded for tax purpose.

What does this change for foreign owners?

SMLLC reporting requirement is currently nonexistent. When the owner takes money from his LLC account, it is an owner distribution, when he puts money in, that's an owner contribution. You commonly have LLC owning LLC for additional liability protection, and reporting requirements are minimal because there is no tax consequence to an owner distribution or contribution.

While nothing changed in terms of taxation from an IRS standpoint, this additional reporting is being put in place to improve cooperation with foreign tax authorities. The requirement is a game changer in the scope of bookkeeping that is required from foreign owner SMLLC.


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