Did you know that if you have a LLC in the US, you may need to file a tax return for it?
For US citizens and residents, single-member LLCs are considered “disregarded entities” and don’t need to file a separate tax return – all activity for the LLC is reported on the owner’s tax return. However, if you’re a foreign national who doesn’t file a resident tax return, under IRS regulations your LLC is treated as a corporation for reporting purposes.
A foreign-owned U.S. [disregarded entity] is a domestic DE that is wholly owned by a foreign person. For tax years beginning on or after January 1, 2017, and ending on or after December 13, 2017, a foreign-owned U.S. DE is treated as an entity separate from its owner and classified as a corporation for the limited purposes of the requirements under section 6038A that apply to 25% foreign-owned domestic corporations. See the final regulations at IRS.gov/irb/2017-03_IRB#TD-9796.
This means that every year, you need to file Form 5472 to report any transactions between yourself and your LLC, as well as a “pro forma” corporate tax return, form 1120. (The 1120 is essentially only filed so that the IRS has a record to attach the 5472 to – you only have to fill in the name and address of the LLC and items B and E on the first page.
These forms must be filed by mail or fax (they cannot be filed electronically) – see the Form 5472 Instructions for submission details.
The penalties for failing to file these forms are extraordinarily steep:
Penalties for failure to file Form 5472.
A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3.…Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.
Need help filing your LLC’s tax returns? Contact us today.