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The obligation for foreign-owned US corporations to submit Forms 5472 and 1120 has been in place for some years, but the IRS recently issued TD 9796 and added additional regulations to Section 1.6038A-1 of the Code of Federal Regulations. These new rules took effect on January 1st, 2017, and now apply to all foreign-owned Single-Member LLCs that are Disregarded Entities.
Since 2017, all foreign-owned Single-Member LLCs that are Disregarded Entities have been classified as Corporations for federal reporting (information submission) to the IRS. This does not indicate that the LLC pays taxes in the same manner as a corporation but rather that it reports information in the same manner as a corporation.
The IRS considers a single-member LLC to be a Disregarded Entity unless the LLC has filed a specific election to be taxed as a Corporation. The term “disregarded” simply indicates that the IRS “ignores” the LLC for federal tax purposes and taxes it in the same manner as the owner.
Every year, the following types of LLCs must submit Forms 5472 and 1120:
- a Disregarded Single-Member LLC held by a non-US resident or foreign entity
- a Foreign-owned, single-member LLC taxed as a corporation
- a Multi-Member LLC is taxed as a Corporation with at least one foreign member owning 25% or more of the LLC
How to File
The following are the prerequisites for foreign-owned Single-Member Disregarded LLCs:
1. Obtain an Employer Identification Number (EIN) (EIN).
2. Submit Forms 5472 and 1120. (only LLC name, address, and items B and E are required).
3. Keep financial records that back up the information on Form 5472.
4. Depending on a variety of criteria (kind of company, tax filing status, country of residence, and US tax treaties), you may be required to file a 1040NR (Nonresident Alien Income Tax Return) and get an ITIN (Individual Taxpayer Identification Number).
However, depending on those same variables, you may not have US source income and so may not need to submit a 1040NR or obtain an ITIN. To assess your tax filing duties in the United States, you should consult with an accountant.
5. Forms 5472 and 1120 should be mailed or faxed to the IRS. Simply attach Form 5472 to your completed pro forma Form 1120. Then mail or fax it to the IRS. The standard Form 1120 mailing addresses will not work. The correct address may be found in the filing instructions for Form 5472.
How do you obtain an EIN for your LLC?
EIN is an acronym that stands for Employer Identification Number and is also known as a Federal Tax ID Number. Your LLC must have an EIN to submit Forms 5472 and 1120.
You may obtain an EIN for your LLC online if you have an ITIN (Individual Taxpayer Identification Number). Instructions for obtaining an EIN online may be found here.
You cannot obtain an EIN online if you do not have an ITIN (or an SSN, Social Security Number), but you may obtain an EIN for your LLC.
Conclusion
The IRS has put a new tax reporting requirement on all foreign-owned Single-Member LLCs that are Disregarded Entities. This is a result of the IRS changing the way it treats Single-Member LLCs for federal tax purposes.
As a result, all foreign-owned Single-Member LLCs that are Disregarded Entities are now treated as Corporations for federal reporting requirements and must file Form 5472 and Form 1120.
However, the IRS has put several limitations on the new requirements that make it easier for foreign-owned Single-Member LLCs to comply with these new regulations.
Do you need help with tasks to establish your foreign subsidiary, such as opening your US business bank account or obtaining an EIN? Doola can help you confidently start your business in the US. Schedule your free consultation today!
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