If you are a sole partner of an LLC company  (LLC Single Member) and is not a US resident, you will be required to complete Forms 5472 and 1120 annually.

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First of all, we would like to inform you that the purpose of this article is to discuss the mandatory filling out of form 5472 in particular. We emphasize, however, that this is not the only obligation of an LLC to the IRS. We recommend that after reading this article, you contact one of our consultants or an accountant so that your company's situation can be evaluated.

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Nevertheless, we take this opportunity to highlight the importance of filling out form 5472. If the declaration is not made correctly, the IRS may charge a minimum fine of USD 25,000.00 (Twenty-five thousand dollars) . In addition, the IRS can also file criminal proceedings against the taxpayer under the Sections.  7203 ,  7206  and  7207  of the US Internal Revenue Code.

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Introduction:

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Since 2017, during the Trump administration, it was decided that all foreign-owned single-member LLCs would be treated as Corporations for federal reporting requirements (sending information) to the IRS. However, the company will not be taxed as a Corporation, it will only have to comply with the same reporting rules to the IRS.

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Thus, it was decided to fill in forms 5472 and 1120 for the following cases:

- a single-member LLC that is disregarded and owned by a non-US resident or foreign company;

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- a single-member LLC that is foreign owned and taxed as a corporation;

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- a multi-partner LLC that is taxed as a corporation and has at least 1 foreign partner who owns 25% or more of the LLC.

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If you own a business with more than one non-resident foreign partner, you will not be required to complete Forms 5472 and 1120.

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If an LLC company has another LLC company as a partner, the owner of which is a foreign person not resident in the United States, the above-mentioned forms will remain mandatory.

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What is form 5472:

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Form 5472 is not a tax return, but a statement of information to the Internal Revenue Service (IRS). The mere filing of the declaration does not mean that the company must pay taxes in the fiscal year, with the objective of preventing foreign persons from avoiding the payment of taxes in the United States.

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Reportable Transactions:

IRS regulations require foreign-owned LLCs to file Form 5472 for transactions deemed reportable, specifically to include amounts paid or received in connection with the formation, dissolution, acquisition and disposal of the LLC. The reportable transactions listed in Part IV of Form 5472 are generally not the types that occur in the context of a family succession planning framework, with the exception, perhaps, of loans and interest paid or received. Therefore, taxpayers will include a zero in the total lines in Part IV and then check the box in Part V to indicate that the foreign-owned LLC's reportable transactions are described on a separate sheet attached.

Form 1120:

Form 1120 is an income tax return for Corporations, however, it is now required by foreign-owned Single Member LLCs under new IRS regulations.

The Form 1120 requirement is called a “pro-forma”, meaning you don't need to fill out the entire form, just a portion of it. You will need to fill in the Name, Address, Section B and Section E on the 1st page. Do not type anything else on page 1 or any other page of Form 1120. Leave everything else blank.

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IRS Contact:

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The IRS does not provide tax advice, so it is important that you first contact a US tax consulting firm, evaluator, or tax attorney.  

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If you need to contact the IRS, the International Department is available at +1-267-941-1000, Monday through Friday, 6:00 am to 11:00 pm EDT.

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