Multi-Member LLC Owned by Non-Residents: 1065, K-1s, Withholding

Is a two-member LLC with foreign partners a pass-through partnership?

Yes. A US LLC with two or more members is a partnership for federal tax by default unless it files Form 8832 to be taxed as a corporation (26 CFR 301.7701-3(b)(1)). The default rule counts members; it does not ask where they live, and non-residents can own all of a US LLC (forming and running a US company from abroad). So a two-owner Wyoming or Delaware LLC owned from abroad is a pass-through: the partnership pays no federal income tax, and each owner is taxed on their share, paid out or not (26 USC 701; Form 1065 instructions).

A case is not simple when:

• a year's Form 1065 was never filed, because the penalty is charged per owner, per month
• the LLC has an office, a warehouse, inventory or staff in the US, or an owner works on the business while visiting the US, because its profit may then be ECI
• an owner joins, leaves or moves to the US during the year
• someone already filed Form 8832, Form 2553 or Form 5472 for the LLC

Gather these first:

• the operating agreement, with each owner's share of profit and capital
• each owner's legal name, address, country of tax residence and any US tax number
• the LLC's EIN letter, formation papers and any election forms
• bank and payment-processor statements for the whole year, including accounts outside the US
• where the work happens: who does it, from which country, and any US office, warehouse, contracts, staff or contractors
• the days each owner spent in the US during the year, and what they did there
• prior federal and state filings and any IRS letters

Must an LLC with foreign partners file Form 1065 if it has no US income?

Yes, if it had any income or deductions. Every domestic partnership, including an LLC classified as one, files Form 1065 unless it had no income, deductions or credits that year (Form 1065 instructions; 26 CFR 1.6031(a)-1). The test asks whether there was income, not whether it came from the US. The exception for partnerships with only foreign partners and no ECI covers a foreign partnership, organized outside the US, not a US LLC (Form 1065 instructions).

A calendar-year LLC's Form 1065 is due:

Two foreign owners change these parts of the return:

How the profit is split and how K-1s work in general is in how partnerships are taxed.

What happens if the LLC skips Form 1065?

The LLC owes a penalty for each month or part of a month the return is late, up to 12 months, times the number of people who were partners during the year (26 USC 6698). For a return for this tax year, the monthly amount is $260 per partner (Rev. Proc. 2025-32). Each unfiled year counts separately. Each Schedule K-1 or K-3 not furnished on time or missing required information can add $340 (Form 1065 instructions).

Small-partnership relief, which the IRS presumes for partnerships with 10 partners or fewer that meet its tests, does not fit: every partner must be an individual other than a nonresident alien, or a deceased partner's estate (IRS: failure to file penalty). Other relief routes are in late partnership return penalty relief. If the LLC has already closed, see Form 1065 never filed for a closed foreign-owned LLC.

Does a two-owner LLC file Form 5472?

No. Form 5472 is filed by a US corporation that is at least 25% foreign-owned, by a single-member US LLC wholly owned by one foreign person, or by a foreign corporation with a US business (Form 5472 instructions). A two-owner LLC taxed as a partnership is none of these. A pro forma Form 1120 with Form 5472 does not replace the Form 1065 the partnership must file.

Form 5472 comes back if the LLC drops to one owner and becomes a disregarded entity wholly owned by a foreign person; see LLC down to one member and foreign-owned single-member LLC filing. It can also apply after an election to be taxed as a corporation; see the corporate election question below.

Does the LLC or each owner owe US tax?

The LLC owes no federal income tax; partners are taxed instead (26 USC 701). Each non-resident owner owes US tax on their share of income effectively connected with a US trade or business, after deductions, at graduated rates (IRS: ECI). Under section 875, a non-resident partner is treated as engaged in a US trade or business whenever the partnership is (26 USC 875). So the question is what the LLC does in the US.

The IRS describes a test, not a checklist. Whether there is a US trade or business depends on the nature of the activities, which must be considerable, continuous and regular; personal services performed in the US usually count (Publication 519; IRS: ECI). Facts that point toward ECI:

• an office, warehouse or other fixed place of business in the US
• inventory kept in the US, even in a warehouse another business runs, and sold to US customers
• staff doing the business's work in the US
• an agent in the US, other than an independent one, who regularly signs contracts for the business
• an owner working on the business while in the US

A business run entirely from abroad, with none of these, may have no ECI, but no IRS rule settles that for a given business: the activity facts decide, not the state where the LLC was formed. A tax treaty with an owner's home country can generally exempt business profits not attributable to a US permanent establishment (Publication 519), which usually means a fixed place of business, such as an office, or a dependent agent who habitually signs contracts for the business (Publication 901; US Model Income Tax Convention, Article 5). The tests and treaty claims are in when foreign owners owe US tax.

When must the LLC withhold tax for its foreign partners?

In two cases: when the LLC has income effectively connected with a US business (ECI) allocable to a foreign owner, and when it has US-source investment income, such as US dividends, interest or royalties.

With ECI, the LLC pays section 1446 withholding on each foreign partner's share of effectively connected taxable income, whether or not it pays out cash: 37% for an individual and 21% for a corporate partner (26 USC 1446; Form 8804 instructions). It pays in installments with Form 8813 and files Form 8804, with a Form 8805 for each foreign partner. Profit that a treaty exempts for an owner is not withheld on, but the LLC reports that exemption on the owner's Form 8805. A partner's missing US tax number does not excuse the payment (Form 8804 instructions), and the LLC itself is liable for tax it should have withheld (26 USC 1461).

US-source investment income that is not ECI faces 30% withholding, or a lower treaty rate, and the LLC itself is the withholding agent: it withholds on each foreign owner's share when it pays the share out, or otherwise when it furnishes the K-1, by the K-1 due date at the latest, and reports on Forms 1042 and 1042-S (26 CFR 1.1441-5(b)(2); IRS: FDAP income; IRS: partnership withholding). With neither kind of income, there is nothing to withhold. Installment dates, certificates and missed withholding are in foreign partners: withholding and forms.

What does each owner file?

A nonresident alien owner files Form 1040-NR for any year they are engaged in a US trade or business, which includes any year the LLC is. They must file even with no income from it, or with income exempt under a treaty (Form 1040-NR instructions). The owner reports the K-1 share and attaches Form 8805 to claim the tax the LLC withheld (Form 8804 instructions). Without US wages, a calendar-year return is due June 15 (Publication 519).

If the LLC is not engaged in a US trade or business, an owner generally files only when US tax on their US-source income not tied to a US business, such as US dividends, was not fully withheld; that income goes on Schedule NEC (Form 1040-NR instructions). An owner with no Social Security number needs an ITIN; the LLC must give the IRS a US tax number for each foreign partner so withholding is credited (Form 8804 instructions). See ITIN for a foreign owner and Form 1040-NR for business income.

Does the LLC file state returns too?

It may. A state can require a partnership return, an annual fee or withholding for non-resident partners from an LLC formed, registered or earning income there, and the rules differ by state. A tax treaty generally covers only federal income tax, so a treaty exemption may not reach state tax (US Model Income Tax Convention, Article 2); see how partnerships are taxed.

Would electing to be taxed as a corporation be simpler?

It trades one set of filings for another, and for an LLC whose profit is not ECI it can mean US tax on profit the US did not tax before. After a Form 8832 election, the LLC files Form 1120 and pays 21% federal tax on its taxable income, wherever earned (26 USC 11; 26 USC 61), and Form 5472 for reportable transactions with its foreign owners (Form 5472 instructions). Form 1065, the K-1s and section 1446 withholding fall away, but dividends to the owners face 30% withholding or a treaty rate (IRS: FDAP income). The election can take effect up to 75 days before or 12 months after filing, and is treated as the partnership moving its assets into a new corporation. After changing its classification, an LLC generally cannot change again for 60 months (26 CFR 301.7701-3(c)(1)(iii), (c)(1)(iv) and (g)(1)(i)). The trade-offs are in foreign-owned LLC taxed as a corporation.

Example

These examples are illustrative; amounts are in US dollars.

Software sold online from two countries

Two developers, one in Poland and one in Vietnam, own a Wyoming LLC 50/50. They sell software online, work only from home, and have no US office, staff or inventory, and no one acting for them in the US except the registered agent that receives legal papers. Profit is US$90,000.

• The LLC files Form 1065 with a K-1 showing US$45,000 for each owner, marked "foreign partner", plus the Schedule K-2 and K-3 parts that apply. It is due March 15, or June 15 if it keeps its books outside the US and attaches the statement.
• If those facts hold, the profit is likely not ECI, so no section 1446 withholding, no Forms 8804 and 8805, and likely no Form 1040-NR for this income. Any US-source royalties or other investment income would still face 30% withholding by the LLC.
• If one owner spends a month working in the US, that year needs a fresh look.

Two years with no Form 1065

The same LLC skips its first two returns, believing that no US income means no US filing, and files each one more than 12 months late.

That is US$12,000 before interest, K-1 penalties or any relief. The monthly amount is indexed to the year the return was due; a late return for this tax year uses $260. First Time Abate may remove the first year's penalty; the second year's generally stays, because its look-back finds the first year unfiled (IRS: administrative penalty relief).

A US warehouse with a US manager

Two owners living outside the US run an LLC that ships from a US warehouse run by a US employee. Profit is US$200,000, split 50/50.

• A US warehouse run by a US employee likely makes the LLC engaged in a US trade or business, so its sales profit is likely ECI, and each owner is then treated as engaged in that business.
• The LLC withholds 37%, the highest individual rate, of each owner's US$100,000 share, US$37,000 each, in installments on Form 8813, cash paid out or not, and files Form 8804 with a Form 8805 for each owner.
• Each owner files Form 1040-NR, reports US$100,000 and claims the US$37,000 credit. If their tax at graduated rates is lower, the difference is refunded. If an owner's treaty exempts the profit because the warehouse is not a US permanent establishment, the LLC does not withhold on that owner's share and marks the exemption on their Form 8805; the owner still files Form 1040-NR, disclosing the treaty claim on Form 8833 (26 CFR 301.6114-1(b)(5)).

Different for you?

• A Form 1065 year was missed, a Form 5472 with a pro forma Form 1120 was filed instead, or the IRS sent a penalty notice: the per-partner penalty grows monthly; get business tax help and see late partnership return penalty relief.
• The LLC may have its first ECI (a US hire, warehouse, office, or owner working in the US): withholding starts that year; get business tax help and see foreign partners: withholding and forms.
• An owner is joining or leaving: if the LLC is engaged in a US business, whoever buys a foreign owner's interest, including the LLC when it pays the owner out, generally withholds 10% of the amount realized (Form 8288 instructions); see LLC down to one member and get business tax help for the split-year returns.
• One owner is a US citizen or resident: see company with a foreign co-owner.
• An owner is moving to the US: see moving to the US with your US company.
• The owners are spouses: they are two owners by default, so this page applies when both live abroad. Spouses holding the LLC as community property may instead report it as disregarded, with no Form 1065 (Rev. Proc. 2002-69), but how that applies to nonresident aliens is unsettled; see LLC with a spouse living abroad and get business tax help before choosing.
• The LLC has an account outside the US, such as in an owner's home country: see FBAR for company accounts abroad and get FBAR help.
• The LLC closed without filing: see Form 1065 never filed for a closed foreign-owned LLC.