What a foreign-owned single-member LLC files with the IRS

Why does an LLC that is ignored for income tax have to file?

Because a regulation treats it as a corporation for this one purpose. A US LLC with one owner is normally ignored for income tax (a "disregarded entity"). But if one foreign person owns all of it, directly or through other disregarded entities or grantor trusts, it is treated as a separate US corporation under the Form 5472 rules (26 CFR 301.7701-2(c)(2)(vi); 26 CFR 1.6038A-1(c)). The rule applies to tax years beginning after December 31, 2016, and ending on or after December 13, 2017.

A trust passes ownership through only if the foreign person is treated as its owner under the grantor trust rules (26 CFR 301.7701-2(c)(2)(vi)(B)(3)). For a foreign person, that generally means they alone can revoke it, or during their life it can pay only them or their spouse (26 USC 672(f)). Otherwise the trust itself is the owner: a foreign trust keeps the LLC foreign-owned, and a US trust takes it outside these rules.

Form 5472 is the information return for US corporations that are at least 25% foreign owned. It reports their dealings with owners and other related parties. It applies even if the LLC has no US income: for these rules the LLC counts as a US person, and the exception for dealings between two foreign persons with no US income does not apply to it (26 CFR 1.6038A-2(a)(2); Form 5472 instructions).

Generally, a foreign person is an individual who is not a US citizen or resident, a company or partnership formed outside the US, a foreign estate or trust, or a foreign government acting commercially (26 CFR 1.6038A-1(f)). "Resident" is the tax test, not immigration status: a green card holder, or someone who meets the substantial presence test for the year, is a US resident (IRS: tax residency status).

What exactly gets filed?

A pro forma Form 1120 with Form 5472 attached. Pro forma means the 1120 is only a cover: fill in the LLC's name and address, item B (EIN) and item E (initial return, final return, name or address change), and write "Foreign-owned U.S. DE" across the top (Form 5472 instructions).

File one Form 5472 for each related party the LLC dealt with. Related parties include the owner; the owner's spouse, brothers and sisters, ancestors (such as parents) and descendants (such as children); and others related to the LLC or the owner under the tax law's tests, such as another company the owner controls (Form 5472 instructions; 26 USC 267(b) and (c)). If one US LLC owns another, each files its own pro forma Form 1120 and Form 5472, including for dealings between them (26 CFR 1.6038A-2(b)(11)).

The LLC uses the owner's tax year if the owner must file a US tax or information return; otherwise it uses the calendar year (26 CFR 301.7701-2(c)(2)(vi)(C)).

Which transactions go on Form 5472?

Almost any dealing between the LLC and its owner. A transaction is any transfer of money or property, loan, contribution or service, however it is done and whether or not it is documented (26 CFR 1.482-1(i)(7)).

LLC costs the owner pays from a personal account are transfers between owner and LLC, so they count too. State amounts in US dollars and attach the exchange rates used. An LLC that keeps its books on the accrual method (recording amounts when earned or owed, not when paid) reports those amounts (Form 5472 instructions; 26 CFR 1.6038A-2(b) and (c)).

The LLC skips a year only if it had no reportable transaction of any kind in Parts IV, V or VI. A loan between the LLC and its owner is reported by its balances each year it is outstanding, so a year with no new money moving can still need a filing (26 CFR 1.6038A-2(b)(3)(vii); Form 5472 instructions). Money the owner puts in to form or fund the LLC is reportable, so the first year normally requires a filing.

When is it due, and how is it filed?

By the 15th day of the 4th month after the LLC's tax year ends: April 15 for a calendar year (Form 1120 instructions). Form 7004, filed by that date, extends it 6 months (Form 7004 instructions). On Form 7004, enter the Form 1120 code (12) on Part I, line 1 and write "Foreign-owned U.S. DE" across the top (Form 7004; Form 5472 instructions).

Send both the return and any Form 7004 to the IRS's dedicated unit, not the usual Form 1120 or Form 7004 addresses:

• Fax (300 DPI or higher): 855-887-7737
• Mail: Internal Revenue Service, 1973 Rulon White Blvd, M/S 6112, Attn: PIN Unit, Ogden, UT 84201

The instructions say an LLC like this cannot file Form 5472 electronically (Form 5472 instructions).

Does the LLC need an EIN?

Yes. Both Form 5472 and the pro forma Form 1120 ask for it. Apply on Form SS-4: on line 9a, check "Other" and write "Foreign-owned U.S. disregarded entity-Form 5472"; on line 10, check "Other" and write "Foreign-owned U.S. disregarded entity filing Form 5472". The online application needs a principal place of business in the US and the responsible party's SSN or ITIN (IRS: get an EIN). Applicants outside the US can apply by phone, fax or mail. The responsible party must be the individual who ultimately owns or controls the LLC, never a company. If that person has no SSN or ITIN and cannot get one, enter "foreign" on line 7b (Form SS-4 instructions).

If a bank, platform or client asks the LLC for Form W-9, the foreign owner gives the appropriate Form W-8 instead, even if the owner has a US tax ID (Form W-9).

What records must the LLC keep?

Books and records that show the correct US tax treatment of its transactions with related parties: every contribution, distribution, loan and payment between the LLC and its owner, with support (26 CFR 1.6038A-3). The small-corporation and low-value exceptions that ease these rules for other reporting corporations do not apply to a foreign-owned single-member LLC (26 CFR 1.6038A-1(h) and (i)).

Records kept outside the US must reach the IRS within 60 days of its request, with English translations within 30 days of a request for them, or be moved to the US within 60 days. Keep them as long as they may matter, and at least until the IRS's time to assess the year runs out (26 CFR 1.6038A-3(f) and (g)).

What is the penalty for not filing?

$25,000 for each tax year the LLC fails to file on time and in the required way, or fails to keep the required records. A substantially incomplete Form 5472 counts as not filed. Each missed year is a separate failure (26 CFR 1.6038A-4).

If a failure continues more than 90 days after the IRS mails a notice, another $25,000 applies for each 30-day period, or part of one, for each related party. The law sets no cap on these (26 USC 6038A(d); 26 CFR 1.6038A-4(d)). For tax years beginning before 2018, each penalty was $10,000 (IRM 20.1.9.5.4).

A penalty may be excused if the LLC shows, in a written statement signed under penalties of perjury, that it acted in good faith and had reasonable cause, such as an honest, reasonable misunderstanding of the rules. The IRS decides case by case (26 USC 6038A(d)(3); 26 CFR 1.6038A-4(b)), and treats reasonable cause as generally unavailable for the added 30-day penalties (IRM 20.1.9.5.5). Criminal penalties can apply to failing to submit information or to false or fraudulent information (Form 5472 instructions).

What does this filing not cover?

Form 5472 is an information return only. These are separate:

• The owner's income tax. The pro forma Form 1120 reports no income; a single-member LLC's income belongs on its owner's return (Form 1120 instructions). An owner engaged in a US trade or business, or with US income not fully covered by withholding, may have to file Form 1040-NR (individual) or Form 1120-F (foreign company) (Form 1040-NR instructions; Form 1120-F instructions). A foreign company engaged in a US trade or business may also have to attach its own Forms 5472 to Form 1120-F (Form 5472 instructions). See when foreign owners owe US tax.
• FBAR. A US-formed LLC is a US person for FBAR, even though it is disregarded for income tax. If it has a financial interest in or signature authority over foreign financial accounts worth more than $10,000 in total at any time in the calendar year, it files its own FBAR with FinCEN (31 CFR 1010.350(b); FinCEN: who is a US person; FinCEN: FBAR). See foreign account reporting.
• Payroll and excise taxes. If it has employees or owes excise tax, the LLC reports these under its own name and EIN (Form SS-4 instructions).
• State filings. Annual reports, fees and franchise or income taxes vary by state and are not covered here.
• Beneficial ownership (BOI) reports. FinCEN's page states that all entities created in the United States, and their beneficial owners, are exempt from BOI reporting. Only companies formed under foreign law and registered to do business in a US state or tribal jurisdiction must report (FinCEN: BOI).

Example

Illustrative only; amounts in US dollars. Ana lives in Brazil and is not a US citizen or resident. In March she forms a US LLC and is its only member. She puts $10,000 into its bank account and pays its $300 state filing fee from her personal card. The LLC earns fees from unrelated clients. In November it pays her a $4,000 distribution. It uses the calendar year.

The client fees are not on Form 5472, because the clients are not related parties. Whether Ana owes US tax on them is a separate question.

Different for you?

• You live in Canada. Canadian rules add their own treatment and reporting: see Canadian owner of a US LLC. Still choosing a structure? See a US business for a Canadian resident.
• You live in the US or hold a green card. You may be a US resident for tax, and then this filing may not apply. A year you arrive or leave can count as both. See cross-border tax.
• The LLC is held by a trust. Whether the trust or the person behind it counts as the owner decides whether this filing applies. See cross-border tax.
• The LLC does business in the US. You may owe US tax yourself: see when foreign owners owe US tax.
• The LLC has bank or investment accounts outside the US. See foreign account reporting.
• The LLC has two or more owners. It is generally a partnership filing Form 1065, not this. See cross-border tax.
• The LLC elected to be taxed as a corporation. It files a regular Form 1120, with Form 5472 attached for any reportable transactions. See tax preparation.
• You missed past years. Each year that needed a filing is a separate failure, and a penalty can apply to each unless reasonable cause excuses it. The IRS's time to assess tax for such a year does not close until at least 3 years after its Form 5472 is filed (26 USC 6501(c)(8)). The IRS may assess the penalty when it processes a late form, even with a reasonable cause statement attached (IRS: delinquent international information returns). See cross-border tax.
• You need the LLC formed or its books kept. See business formation or bookkeeping.