Single Member LLC With Foreign Owner Must Report To The IRS

LLCs or limited liability companies with a single member are disregarded entities for tax purposes. Under the new IRS regulations, LLCs with a single owner who is not a U.S. citizen will report to the IRS the same as corporations. Treating single member LLCs with foreign owner as corporations will oblige to keep records and penalties in case of no compliance under section 6038A, Information with respect to certain foreign-owned corporations of the Internal Revenue Code (IRC).

Under section 6038A IRC, corporations with a 25% foreign ownership are obligated to comply with these requirements. Starting January 1, 2017, single member LLCs are also under the same obligation.

This new regulation come as a result of the use of LLCs from foreign investors to buy real estate, some times not even rented, escaping the reporting requirement, parking determined amounts of cash using LLCs as a money-laundering vehicle or even to hide assets from foreign tax authorities in conjunction with the formation of a Grantor Trust, given the lack of disclosure from single member LLCs entities. Foreign real estate buyers to avoid probate, use offshore trusts or companies that own the assets via a fully owned LLCs.

New Reporting Requirements:

1. 1) File form 5472.
2. 2) Keep records of transactions with related parties.
3. 3) Obtain a Tax ID or EIN.
4. 4) Filing is an obligation even if it's a foreign corporation and reporting form 5472 or 1120-FSC
5. 5) Inform Reportable Transactions:
   • Property sales,
   • Licenses,
   • Leases,
   • Loans,
   • Assignments and remunerated services,
   • Any amount paid or received in connection with the formation, dissolution, acquisition and disposition of the entity,
   • Funding the LLC, whether by loan or contribution.

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