US Filing Requirements for US Disregarded Entities Owned by 1 Foreign Person

US FILING REQUIREMENTS FOR US DISREGARDED ENTITIES OWNED BY 1 FOREIGN PERSON

Until recently, there were limited U.S. tax reporting requirements for U.S. disregarded entities that are owned by a single foreign person (such as a Limited Liability Company, LLC). However, in December 2016, the IRS issued final regulations that amend the entity classification regulations to treat legal entities organized under the laws of the United States and disregarded for U.S. tax purposes that are owned by a single foreign person as domestic corporations for the purposes of certain reporting requirements. This means that many foreign-owned U.S. LLC’s that previously had no U.S. tax filing requirements are now, starting with tax year 2017, required to file information returns with the IRS.

Form 5472

Under the regulations issued in December 2016, U.S. disregarded entities with a single foreign owner are required to file Form 5472 with respect to certain reportable transactions. Reportable transactions include payments with respect to the dissolution, acquisition, and disposition of the entity, as well as contributions to and distributions made by the entity. Single owner U.S. disregarded entities are required to maintain records to establish and substantiate their tax filing requirements.

Foreign Bank Account Report (FBAR)

A U.S. disregarded entity is required to file FinCEN Form 114 (‘Foreign Bank Account Report’ or ‘FBAR’) if it owns one or more foreign financial accounts and the aggregate value of those accounts exceeds $10,000 at any time during the tax year. Failure to file an FBAR can result in substantial penalties ($10,000 if the failure to file is non-willful and $100,000 or 50% of the value of the financial account if the failure to file is willful.

Contact

If you have any questions with respect to the U.S. filing requirements for U.S. disregarded entities, please contact us. Sanders US Tax Services specializes in U.S. tax preparation and consulting for U.S. taxpayers living overseas as well as anyone else dealing with the U.S. tax system.