LLC Treated as C Corporation Without a Check the Box Election…?!
As of January 1 2017 there were new rules in place for foreign owners of US LLCs that were treated as disregarded entities (DREs) for US tax purposes.
I won’t go in to the technical analysis of the why’s and wherefores as that is contained elsewhere in CLAs materials on a great article by my colleague Mike Smith should you wish to deepen your knowledge and understanding of this issue. What I want to do is highlight where this may occur in peoples situations and structures and why it is important to comply (HINT: $10,000 penalty for non-compliance).
Essentially legislation effective for tax years beginning January 1 2017 onwards, and therefore this current US tax compliance seasons, has imposed informational reporting for transactions with its overseas owner, similar to that of the overseas owner of a US C Corporation.
What this means for foreign owners of US LLCs treated as disregarded entities, is that an additional compliance burden of filing Form 5472 to report transactions the US LLC entered in to and transacted throughout the 2017 tax year and onwards is of utmost importance.
Situations where this could be relevant are:
- Overseas owners of US real estate held in a US LLC
- Overseas owners that utilize US LLCs to hold personal property such as art, antiquities, collectibles as well as bonds and stock
- Overseas corporations that utilize a US LLC to enter the US market place via a branch operation
- US LLC subsidiary of a US Corporation that itself is owned by overseas owners
The importance of ensuring full compliance with these issues is that any failure to file a full and complete Form 5472 may lead to a penalty of $10,000 per 5472 filing requirement.
If you, your business or your clients require any support, guidance or assistance as to whether this affects their tax affairs or compliance procedure in 2017 please do get in touch.