FAQs and Tips

Below are answers to questions, tips, and suggestions, for preparation of Form 5472 (and related proforma 1120) and Form SS-4 (EIN Application) specifically for single member LLCs.

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Frequently Asked Questions

Not legal or tax advice

What is IRS Form 5472?

It is used to provide information that is required under sections 6038A and 6038C of the Internal Revenue Code when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party.

Can I file a '0' return?

Almost certainly not. This will rarely be possible, and never possible in the first year of formation.

Why? Because Part V of Form 5472 specifically states that '...amounts paid or received in connection with the formation...' must be described on a separate sheet. Thus, there will always be reportable transactions in the first year of the LLC's existence (and almost surely in every year thereafter).

What is the penalty for not filing?

$25,000.

There is also a $25,000 penalty for failing to maintain adequate records per IRS section 6001.

If you are unsure whether you are required to file this form, you should speak to a tax professional. It is always better to file, even if you were not required, than to not file if you were required.

What is a reporting corporation?

A 25% foreign-owned U.S. Corporation.

U.S. Corporation means a corporation formed within the United States.

Also includes a foreign-owned U.S. Disregarded entity (DE) (i.e. single member LLC),

A foreign corporation engaged in a trade or business within the United States.

Foreign corporation means a corporation formed outside of the United States.

A foreign-owned single member LLC is a reporting corporation for purposes of form 5472.

Who is a foreign or domestic related party?

With regards to single member LLCs, the owner of a single member LLC is a related party.

Other parties could also be related parties depending on facts and circumstances.

What is a reportable transaction?

Any transaction type listed in parts IV, V, and VI of form 5472.

With regards to single member LLCs, any exchange of property or services between the entity and the member is a reportable transaction.

What is a US Trade or Business (USTOB) and Effectively Connected Income (ECI)?

USTOB is not specifically defined. Activities must be considerable, continuous, and regular.

Generally services performed in the United States are treated as US source income while services performed outside the US are foreign source. This means where the service is performed, not where the client is located.

For example, a bookkeeper living in Rome, Italy, performing services for a client located in the United States, has foreign source income and not US source income.

With regards to selling goods, storing inventory and fulfillment performed in the U.S. results in effectively connected income and a single member LLC is usually required to file a form 1040-NR in such cases. If inventory is stored overseas and shipped directly to the U.S., this is not ECI.

Hiring employees, agents, or contractors located in the U.S., or renting office, warehouse, or retail space in the U.S., will be considered a USTOB.

I have not filed this form for more than one year, what should I do?

It is better to file late than not at all. In the event you receive a penalty letter, you would file a penalty abatement request with the IRS. We would advise to file all past due returns in this situation. Our preparation and filing fee is the same for each year.

What is Form W-8BEN and how do I complete it?

In the context of a single member LLC with no USTOB or ECI, the W-8BEN is an informational return and prevents withholding of US federal tax from payments to you. Companies you do business with may be required to have a W-8BEN on file for your LLC. It is only to be completed if the single member is an individual. If the sole member is a foreign LLC, a different form (W-8BEN-E) is required.

Tips

Part I: Leave line 5 blank if you do not have a SSN or ITIN. If you have a tax identifying number in your country, it should be entered on line 6a. Line 7 is optional.

Part II: Enter on line 9 the country of your tax residence. Leave line 10 blank.

What is Form W-8BEN-E and how do I complete it?

Similar to the Form W-8BEN, except it is for entities rather than individuals. If the entity comes from a country with a US tax treaty, this form is submitted to the payor to become exempt from 30% withholding.

Tips

Line 3: This is only used when the payor makes payment to a 3rd party, like an accounting institution, and then the institution pays the foreign entity. If line 3 is completed, then Part II must also be completed.

Line 4: Corporation or partnership are the most common entity types.

Line 5: The most common FACTA status is Active Non-Financial Foriegn Entity (NFFE). If nothing else seems to fit, this is probably the best box to check.

Line 6: This is the business address.

Line 7: May be skipped if the same as Line 6.

Line 8: A foreign entity probably does not have this.

Line 9a: Enter Global Intermediary Identification Number (GIIN), if applicable.

Line 9b: Enter the entity tax identification number in its country of incorporation here, or mark box 9c if one is not required in the country of incorporation.

Line 10: Usually left blank for NFFEs.

Part II, Line 11-13: Complete only if line 3 has an entry.

Part III: 14a, enter country. 14b, c and 15 may or may not be applicable.

Part XXV: If 'Active NFFE' is marked on Line 5, read and check the box if you agree with the statements.

Part XXX: Sign, print, date and check the box.

Does filing this form result in a tax liability?

Not in the United States. Your tax liability is between you and your home country.

A disregarded entity (DE) is an entity that is not considered separate from its owner for purposes of U.S. income tax law. In other words, for purposes of federal tax law, the entity (your single member LLC) is the same as you.

A foreign-owned U.S. DE is an entity formed in the U.S. that is wholly owned by a foreign person.

If Form 8832 was filed to be taxed as a C corporation, then it is no longer a disregarded entity. However, Form 5472 must still be filed because now the LLC would no longer be a disregarded entity, it would be considered a domestic C corporation with a 25% or more foreign shareholder.

Does the IRS report my information to my home country?

The list of countries with a Tax Information Exchange Agreement in place with the United States can be found here:

https://home.treasury.gov/policy-issues/tax-policy/tax-information-exchange-agreements-tieas

When is the form due?

Form 5472 generally is due by the due date of the underlying return. In the case of a foreign owned U.S. DE, the underlying return is the 1120, which has a due date of April 15.

How do I obtain an extension of time to file?

Form 7004 must be filed by the due date (April 15 generally) of the return.

The code for 1120 (12) should be entered in Part I, line 1.

'Foreign-owned U.S. DE' should be written across the top of the form.

It is faxed or mailed to the same addresses as listed in 'How/where do I file?'.

How/where do I file?

It can be faxed to 855-887-7737 or mailed to:

Internal Revenue Service

1973 Rulon White Blvd

M/S 6112 Attn: PIN Unit

Ogden, UT 84201

A foreign owned U.S. DE cannot e-file Form 5472.

What is a pro forma 1120?

It is almost a blank document. The only information required to be completed is the name and address of the LLC and items B (EIN) and E (return status boxes).

When prepared for the purpose of filing Form 5472, 'Foreign-owned U.S. DE' should be written across the top of the 1st page of the 1120.

What is a Disregarded Entity (DE)?

A DE is an entity that is disregarded as an entity separate from its owner for purposes of U.S. income tax law.

A foreign-owned U.S. DE is an entity formed in the U.S. that is wholly owned by a foreign person.

If Form 8832 was filed to be taxed as a C corporation, then it is no longer a disregarded entity. However, Form 5472 must still be filed as a regarded entity (a domestic C corporation with a 25% or more foreign shareholder).

If I have not filed this form but was supposed to, will the IRS come after me or would it prevent me from entering the United States?

No (other than the possibility of receiving a penalty letter).

Will I be notified the IRS received my return?

The IRS does not provide notification of receipt or processing of the return. We have faith in and trust the US Postal Service and the IRS to effectively deliver and process the mail.

The Postal Service does have certified mail available, which provides a receipt that the IRS received the return. The receipt is only available several weeks after the return has been mailed. If you want this layer of assurance, the extra charge is $30.

What are requirements for an LLC with 2 or more members?

If all members are non-US persons, and the LLC does not conduct USTOB or have ECI, the LLC should file a partnership (Form 1065) tax return and related K-1's. That is basically the end of it. Filing the 1065 does not result in a tax due, as partnerships are 'flow through' entities and are taxed at the partner level. Thus the K1s would be used to the extent that the partner's local tax laws require.

Our preparation fees for simple partnership returns in this situation begin at $350. We require a complete set of books regardless of activity (or lack of). If you need a set of books prepared, our fees start at $400/year and depend on amount of activity.

Tips for filling out Form 5472 (for a single member LLC)

Not legal or tax advice

Part I

An Employer Identification Number (EIN) is required to file Form 5472. See below for more information about Form SS-4 (Application for EIN).

Business activity codes can be found in the instructions for Form 1120.

Boxes 1n and 1o will generally be the country of residence of the LLC owner or the country where the work is performed.

Line 3: A foreign-owned U.S. DE should mark this box.

Part II

Box 4b(1) -- enter FOREIGNUS if you do not have an ITIN number

Box 4b(2) -- This is a number that is established by or on behalf of the reporting corporation that is assigned to the foreign shareholder for purposes of unique identification. The reference ID # should consist only of numbers and letters (no special characters) and no longer than 50 characters. It must be used consistently from year to year.

In plain English, you decide what this ID number is, it must be 50 characters or less, and it must be listed the same on the form from year to year.

Box 4b(3) -- You must enter your foreign tax identification number if you have one

Part III

The owner of the single member LLC will be listed in both Part II (as a 25% foreign shareholder) and in Part III (as a Related Party).

Part IV

A single member LLC with no USTOB or ECI would not report any amounts in this section.

Part V

This box should be checked, and amounts paid or received in connection with the formation, dissolution, acquisition, and disposition of the LLC, including any contributions to or distributions from the LLC, should be described on a separate statement.

Part VI

This box should be checked. At minimum, a description of all services performed by the foreign related party (you) for the LLC and a reasonable estimate of the fair market value of the services should be attached on a separate sheet.

If the amount(s) do not exceed $50,000, it can be reported as '$50,000 or less'.

Example: "The Company's sole member materially participates in the operations of the Company. The fair market value of this participation is $50,000 or less. The sole member is a citizen and tax resident of (your country) and performs all services for the Company while physically present in (your country). "

Part VII

For a service based LLC, this section will generally not apply and boxes can be marked 'no'. Individual circumstances may vary and you are urged to seek advice of a tax professional with any questions.

Parts VIII and IX

These are generally not applicable to single member LLCs and boxes may be marked no and lines left blank.

Form SS-4 (EIN Application) Information and Suggestions

Not legal or tax advice

EIN is required to file Forms 5472 and 8832.

Applicants outside the U.S, can only apply by telephone, fax, or mail.

Use a Third Party Designee (like us!) to avoid the hassle of obtaining an ITIN.

A Third Party Designee's authority ends when the EIN is issued.

Line 9a -- Mark 'other (specify)' and write 'Foreign-owned U.S. disregarded entity - Form 5472'

The form may be available in your language here: https://www.irs.gov/help/languages

Line 10 -- Mark 'Other', write 'Foreign-owned U.S. disregarded entity filing Form 5472'

Line 13 -- If you will not be hiring employees in the United States in the next 12 months, enter 0's and leave line 14 blank.

If you do not have a SSN, ITIN, or EIN, line 7b can be left blank or enter "N/A" or "foreign"

Lines 4a and 4b should be a U.S. address. Every state has a requirement that entities have a registered agent if they do not have a physical presence in the state.

Lines 5a, 5b, and 6 should be where the business is physically located. In the case of a single member LLC, this is often your residence, or somewhere you can receive mail in your home country.