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Foreign-owned Single-Member LLC & IRS Form 5472
A few important notes:
1. This article is written for non-U.S. residents and non-U.S. citizens (foreigners) who have formed an LLC in the U.S.
2. Your LLC must have an EIN in order to file Form 5472 and Form 1120. If you don’t have an SSN or ITIN you can still get an EIN for your LLC. We have instructions here: how to get an EIN without an SSN or ITIN.
3. This article is only an overview of Form 5472. It is not detailed step-by-step instructions. Additionally, as a foreigner, this is not your only reporting requirements with the IRS. We strongly recommend that you work with an accountant.
4. This requirement should be taken seriously. If Form 5472 is not filed or filed incorrectly, the IRS charges a minimum penalty of $10,000 USD.
The requirements for foreign-owned U.S. Corporations to file Form 5472 and Form 1120 have been around for some time, however, the IRS released TD 9796 and added new regulations to Section 1.6038A-1 of the Code of Federal Regulations. These new changes went into effect on January 1st, 2017 and now also affect all foreign-owned Single-Member LLCs that are Disregarded Entities.
Starting in 2017, all foreign-owned Single-Member LLCs that are Disregarded Entities are now treated as Corporations for federal reporting requirements (submitting information) to the IRS. This doesn’t mean the LLC is paying tax like a Corporation, but rather, it’s simply reporting information like a Corporation.
A Single-Member LLC is automatically considered a Disregarded Entity by the IRS unless the LLC has made a special election to be taxed as a Corporation. The word
“disregarded” simply means the IRS “ignores” the LLC for federal tax purposes and taxes the LLC the same way the owner is taxed.
In addition to foreign-owned Single-Member Disregarded LLCs, the following types of LLCs also have to file Form 5472 and Form 1120 every year:
- a Single-Member LLC that is Foreign-owned and taxed as a Corporation
- a Multi-Member LLC that is taxed as a Corporation and has at least 1 Foreign owner that owns 25% or more of the LLC
Note: If you have a Foreign-owned Multi-Member LLC that is taxed as a Partnership, you are not required to file Form 5472 and Form 1120.
Direct and Indirect Ownership:
Form 5472 and Form 1120 requirements apply to foreign-owned Single-Member LLCs that are owned directly or indirectly:
- Directly owned means that the owner is a foreign person or a foreign company
- Indirectly owned means the LLC is owned by another Disregarded Entity LLC, which then owns the Single-Member LLC
There are more complex examples of indirect ownership, however, that is beyond the scope of this article and you will need to speak to an accountant for assistance if you have a more complex entity structure.
Purpose of Form 5472
The purpose of Form 5472 and these new regulations is to prevent foreigners from evading U.S. taxes and to close some loopholes that existed in the tax code.
Overview of steps
The requirements for foreign-owned Single-Member Disregarded LLCs and foreign-owned LLCs (single or multi-member) taxed as Corporations are:
- Get an Employer Identification Number (EIN)
- File Form 5472
- File Form 1120 (only LLC name, address, and items B and E required)
- Maintain financial records that prove the accuracy of information on Form 5472
How to get an EIN for your LLC?
EIN stands for Employer Identification Number and is also called a Federal Tax ID Number. In order to file Form 5472 and Form 1120, your LLC is required to have an EIN.
If you don’t have an ITIN (or an SSN, Social Security Number), you can’t get an EIN online, but you can still get an EIN for your LLC. Instructions are here: how to get an EIN without SSN or ITIN.
What is a Foreign Person?
A Foreign Person (aka “foreign-owned”) is any of the following:
- Non-Resident Alien Individual
- any Foreign Company, Foreign Corporation, or Foreign Partnership (or their U.S Branches)
- Foreign Trust or Foreign Estate
- and any other person who is not a U.S. Person
Most of our foreign readers will be Non-Resident Aliens, and are therefore considered a Foreign Person for U.S. tax purposes.
If that’s the case, you fall under the new reporting requirements for Foreign-Owned Single-Member LLCs and you must file Form 5472 and meet its related requirements.
What is a U.S. Person?
A U.S. Person is any of the following:
- U.S. Citizen
- Resident Alien (determined by green card test or substantial presence test)
- Domestic Corporation or Domestic Partnership
- any Estate that is not a Foreign Estate
- Trust that meets certain requirements
- and any other person that is not a Foreign Person
Resident Alien vs Non-Resident Alien:
For more information on the difference between a Resident Alien and a Non-Resident Alien, please see this IRS page: determining alien tax status.
Any foreign person that owns (directly or indirectly) a Single-Member LLC, must file Form 5472 and Form 1120.
A U.S. person who owns an LLC doesn’t have to file Form 5472 and Form 1120.
What about Foreign-owned Multi-Member LLCs?
If you have a Multi-Member LLC that is taxed as a Corporation and has at least 1 Foreign owner that owns 25% or more you must file Form 5472 and Form 1120.
On the other hand – and most common – if you have a Foreign-owned Multi-Member LLC that is taxed as a Partnership, you are not required to file Form 5472 and Form 1120. Therefore, the Form 5472 and Form 1120 requirements do not apply to most Foreign-owned Multi-Member LLCs (again, those are taxed as a Partnership).
The reason why is because Multi-Member LLCs taxed as a Partnership are considered Domestic Partnerships by the IRS, and Domestic Partnerships are U.S. persons, which must file a U.S. tax return.
Foreign-owned Multi-Member LLCs must:
- file an informational Partnership Return (Form 1065)
- issue K-1s to each LLC Member
- and each Member is responsible for filing a U.S. income tax return
If the Foreign-owned Multi-Member LLC has no income (and no expenses, deductions, or credits it would like to claim), then there is no Form 1065 and K-1 filing requirement.
Important: The above is a brief overview of U.S. taxation for a foreign-owned Multi-Member LLC, however the details are more complex including who your LLC Members are, where your LLC is located, how income is made, and your U.S. tax filing requirements. For example, many foreign-owned Multi-Member LLCs also need to file Form 8804 and Form 8805. You will need to speak with an accountant to determine all of your U.S. tax filing requirements.
Reportable Corporations, Reportable Transactions, and Related Parties
While reading IRS instructions, you may come across the following language:
“Form 5472 must be filed by Reportable Corporations that have Reportable Transactions with Related Parties.”
That’s a lot of “R” words, so let’s define them.
A Foreign-owned Single Member Disregarded Entity LLC is considered a Reportable Corporation under Section 1.6038A-1 of the IRS code. It doesn’t matter if the LLC Member is a foreign individual or a foreign company. It is still a Reportable Corporation.
Additionally, a foreign company that is engaged in trade or business in the U.S. is also considered a Reportable Corporation.
The definition of a Related Party in Section 1.6038A-1(d) is a bit difficult to understand since it’s written for Corporations (however, it still applies to Single-Member LLCs).
Here are some examples of who’s a Related Party to a Single-Member LLC:
- The LLC owner
- The LLC owner’s parents, grandparents, brother, sister, spouse, etc.
- Other companies owned (directly or indirectly) by the LLC owner
These are just a few common examples of Related Parties, however, there are more complex examples, many of which are beyond the scope of this article.
Your LLC is still allowed to have transactions with Related Parties, it just must be properly reported to the IRS.
We are unable to help you determine who is and who isn’t a Related Party, however, we strongly recommend you speak with an accountant who works with foreign-owned LLCs. You can also review the following for definitions of Related Parties:
A Reportable Transaction is the movement or exchange of money (or property) between an LLC and its foreign owners. Reportable Transactions can be, but are not limited to, the following:
- Money deposited/invested into the LLC by a Related Party owner (“capital contribution”)
- The LLC paying/giving money to a Related Party (“capital distributions”)
- Loans made by the owner to the LLC or from the LLC to a Related Party
- Money paid to form the LLC, dissolve (shut down) the LLC, or any filings paid to the State by a Related Party.
- Any exchange of money between the LLC and a Related Party, including a sale, assignment, lease, license, loan, advance, or contribution.
– Even if your U.S. LLC doesn’t conduct business or have trade in the U.S., if you made a capital contribution to your LLC, you still have to meet IRS Form 5472 filing requirements.
– The above is a simple overview of what a Reportable Transaction is and doesn’t cover all applicable examples. You will need to work with an accountant to make sure you are properly documenting all Reportable Transactions.
IRS Tax Treaties and worldwide information sharing
The IRS has tax treaties with over 60 countries. This means the governments of those countries agree to share information about their tax citizens in order to better collect tax revenue.
The requirement to file Form 5472 should not be taken lightly. The United States Treasury Department spends billions of dollars enforcing its laws on those that have filing requirements in the U.S.
Download Form 5472
Download Form 5472:
IRS instructions for Form 5472:
Complete the form by hand or on your computer:
You can either print the form, fill it out by hand (use a black pen), then sign; or, you can type in the form on your computer, then print and sign. When printing, use regular white paper (8.5″ x 11″).
Reminder: The information below is not detailed, step-by-step instructions, but rather an overview. We strongly recommend working with an accountant in order to properly file Form 5472 and meet all other U.S. tax reporting and filing requirements.
Part 1 – Reporting Corporation
Part 1 requires contact information and basic details about the Reporting Corporation/LLC.
You’ll list the LLC name, the LLC’s EIN, address, total assets, and business activity. You’ll also list total payments, total value of those payments, and country of LLC formation, to mention a few.
Part 2 – 25% Foreign Shareholder
Part 2 only needs to be completed by U.S. LLCs.
Foreign LLCs or companies (those formed outside of the U.S.) don’t need to complete Part 2.
You will need to list the direct and indirect LLC owners in this section, including their name, address, US taxpayer ID, such as their ITIN (if applicable) and other information.
If you need to apply for an ITIN, you can find instructions here: how to apply for an ITIN.
Part 3 – Related Party
Part 3 includes information for the Related Party that had Reportable Transactions.
Important: A separate Form 5472 must be filed with the IRS for each Related Party.
Part 4 – Monetary Transactions Between Reporting Corporations and Foreign Related Party
Part 4 only needs to completed if the Reportable Transactions were with foreigners.
If the transactions were made with U.S. persons, Part 4 doesn’t need to be completed (although a Form 5472 still needs to be filed).
Part 5 – Reportable Transactions of a Reporting Corporation that is a Foreign-Owned U.S. Disregarded Entity (DE)
If you have a foreign-owned U.S. LLC that is a Disregarded Entity, you need to check off the box in this section and include an attachment that describes these transactions.
Examples are any money paid or received in order to:
- form the LLC
- shut down the LLC
- purchase the LLC
- sell the LLC
Additionally, monies paid from the LLC Member to the LLC (“capital contributions”) and monies paid from the LLC to the LLC Member (“capital distributions”) are also Reportable Transactions.
Part 6 – Nonmonetary and Less-Than-Full Consideration Transactions Between the Reporting Corporation and the Foreign Related Party
Part 6 requires a statement to be attached to Form 5472 if the Reportable Transactions were with foreigners.
If the transactions were made with U.S. persons, an attachment is not needed for Part 6 (although a Form 5472 still needs to be filed).
Part 7 – Additional Information
There are additional questions in Part 7. These questions must be answered by every Reporting Corporation.
A separate Form 5472 required for each Related Party
As mentioned earlier, each Related Party that had Reportable Transactions with the LLC must file their own Form 5472.
Form 1120 is also required
Note: Form 1120 is a tax return for Corporations, however, it is now required by foreign-owned Single-Member LLCs under the new IRS regulations.
Form 5472 must be sent to the IRS attached to Form 1120. “Attached” just means Form 5472 is submitted with Form 1120.
For LLCs who handle taxes on the calendar year, January through December, (which is the most commonly used) Form 5472 and Form 1120 are due every year by April 15th.
Download Form 1120:
IRS instructions for Form 1120:
How to complete Form 1120:
Form 1120 requirement is referred to as a “pro forma” requirement, meaning, you don’t have to complete the entire Form 1120, just a small part of it.
You only need to complete the Name, Address, Section B, and Section E on the 1st page. Don’t enter anything else on page 1 or any other pages of Form 1120. Leave everything else blank.
At the top of the form:
Hand write “Foreign-owned U.S. DE” at the top of Form 1120. It will look like this:
Enter the complete name of your LLC.
Address (two lines):
Enter the main address or place of business for your LLC. It’s best to use the same address listed on Form 5472 and on your EIN Application (Form SS-4). The address can be a U.S. address or it can be a non-U.S. address.
Enter the Employer Identification Number (EIN) for your LLC.
If you don’t have an EIN for your LLC, you will need to get one as soon as possible. You can’t submit Form 1120 or 5472 without your LLC’s EIN. Doing so will cause your filing to be rejected and the IRS will charge a $10,000 penalty as listed below.
- If you have an SSN or ITIN, you can get an EIN for your LLC online. We have instructions here: how to get EIN for LLC online.
- If you don’t have an SSN or ITIN you can’t get an EIN online. You have to apply by mail or fax. We have instructions here: how to get an EIN without SSN or ITIN.
A box only needs to be checked if this is your first return or last return for your LLC.
– The first time you file Form 5472 and Form 1120, check off “Initial return”.
– If you shut down the business and dissolve the LLC, check off “Final return”.
– For all years in between, don’t check off any boxes in Section E.
When is Form 5472 due
Because Form 5472 is sent to the IRS with Form 1120, the Form 1120 due dates apply to both forms.
For tax purposes, most U.S. LLCs operate on the calendar year (January – December), as opposed to the fiscal year.
For LLCs that operate on the calendar year, Form 5472 and Form 1120 are due by April 15th each year. This due date will apply to most filers.
If on the other hand, your LLC operates on a different fiscal year, please see Form 1120 instructions and look at the “When to File” section.
Where to send Form 5472
Form 5472 needs to be sent to the IRS by mail or by fax. Make sure Form 5472 is attached to Form 1120. “Attached” simply means that Form 5472 is behind Form 1120 when you submit them to the IRS.
Internal Revenue Service
201 West Rivercenter Boulevard
PIN Unit, Stop 97
Covington, KY 41011
Remember: Write “Foreign-owned U.S. DE” across the top of Form 1120.
Important: Please confirm the above information with the “When and Where To File” section of Form 5472 instructions.
Nothing is sent back
The IRS doesn’t send anything back letting you know that they’ve received Form 5472.
Accurate books & records
Along with filing Form 5472 and Form 1120, a Foreign-owned Single-Member LLC must maintain financial records that prove the accuracy of Form 5472.
The financial records must detail all Reportable Transactions with all Related Parties.
In addition to Reportable Transactions with Related Parties, your LLC’s records should accurately reflect your LLC’s federal income tax return filing history along with any other required IRS filings.
The IRS can charge its penalty for failing to maintain proper books and financial records.
We strongly recommend working with an accountant on this.
The IRS penalizes LLCs that don’t file Form 5472 on time.
Note: Filing a “substantially incomplete” Form 5472 is considered as a late filing and will be penalized.
Your LLC will be first assessed a $10,000 penalty for late or non-filing of Form 5472. The assessment from the IRS usually comes with a notice reminding you to file Form 5472 within 90 days. If you fail to file Form 5472 within that grace period, the IRS will then assess another $10,000. After that, the IRS will fine your LLC $10,000 every 30 days until you finally file Form 5472 and pay the fees.
Other IRS tax forms for foreigners
Important: This article doesn’t list all requirements foreign owners of U.S. LLCs have with the IRS.
You will need to speak with an accountant who specializes in working with foreigners who formed a U.S. LLC and are doing business in the U.S.
Some things to research and speak to your accountant are:
- US Nonresident Alien Income Tax Return (1040NR/1040NR-EZ)
- Sales tax and/or excise tax
- Conduct of a U.S. trade or business (USTB)
- Effectively Connected Income (ECI)
- Fixed, Determinable, Annual, Periodic Income (FDAP)
- Federal Withholding Tax for Foreign Nationals
- Foreign Bank Account Annual Report (FBAR)
- Real Estate and Foreign Investment Real Property Tax Act (FIRPTA)
- Payroll taxes (if applicable)
- Federal and state unemployment taxes (if you have U.S. employees)
- Form 1042-S
- Form W-8 BEN
- and more
We recommend calling a few accountants who specialize in working with foreigners. U.S. taxes for foreigners are much different than for U.S. citizens and the rules vary a lot depending on what country you live in (the U.S. has tax treaties with 60+ countries).
We recommend using the IRS Acceptance Agent list to find an accountant located in the state where you formed your LLC. All the accountants listed as IRS Acceptance Agents work with foreigners.
Then use our “knights of the roundtable” strategy to make phone calls to a few accountants to see which one you feel most comfortable with, and who understands your business fully.
Not sure? File anyway
If you’re not sure whether or not you have to file Form 5472 and Form 1120 for your foreign-owned LLC, as we’ve mentioned above, it’s best to speak with an accountant.
And the general rule of thumb in the tax world is that if you’re not sure if you should file, it’s best to file anyway.
Submitting information to the IRS does not automatically mean you have to pay taxes. It simply just reports the information to the IRS and keeps you and your LLC in compliance with U.S. tax laws.
IRS Contact Info
If you have any questions, you should first contact an accountant since the IRS doesn’t give tax advice. However, if you need to contact the IRS, you can call their International Department at 1-267-941-1000. Their hours are Monday through Friday from 6am to 11pm U.S. Eastern Time.