In 2016, the IRS finalized regulations pertaining to income tax recordkeeping and filing obligations for U.S. disregarded entities (DEs), such as single member LLCs, which are owned by a non-US person. The new regulations, which require the filing of Form 5472, have caused anxiety and confusion among foreign owners of U.S. DEs (which include single-member LLCs and certain grantor trusts) who, prior to the new regulations, had no U.S. tax filing obligations.
These regulations are now in effect, and those entities required to file the form must take the appropriate steps in anticipation of the impending April 17 tax deadline.
Filing Form 5472
Under the new regulations, starting with years ending on or after December 31, 2017, U.S. DEs with foreign ownership will be required to file Form 5472 to report to the IRS certain transactions involving their foreign owners, including loans and capital contributions. To properly complete the Form, the DE will need to obtain an “Employer Identification Number” (EIN). However, the EIN application can be a complicated process, particularly for certain responsible parties as it could require first obtaining an individual taxpayer identification number (ITIN). It can all be quite confusing and time-consuming!
How MBAF Can Help
Penalties for not properly filing Form 5472 can be steep: as much as $10,000 for 2017 and $25,000 in later years. As you can see, complying with the new regulations can be unclear, particularly since many foreign owners of U.S. DEs may not even be aware of their obligations under the new laws.
Since the filing deadline is rapidly approaching, time is of the essence. MBAF can review your entity structures to identify U.S. DEs which may have to File Form 5472, assist with the application of the required EIN, and determine the relevant transactions which need to be reported.
Understanding the new reporting rules for foreign-owned U.S. disregarded entities can be complex. If you would like to benefit from our expertise in these areas, or if you have further questions on this Advisory, do not hesitate to contact our International Tax specialists, or call us at 1-800-239-1474.