Mandatory reporting by U.S. disregarded entities (single-member LLCs) owned by a non-U.S. person
Final Treasury regulations have been released governing the treatment of domestic disregarded entities wholly owned by a foreign person. The rules apply for the limited purposes of the reporting, record maintenance and associated compliance requirements that apply to 25 percent foreign-owned domestic corporations under Code Sec. 6038A.
The regulations are intended to help prevent the use of single-member LLCs to engage in illicit activities and to strengthen financial transparency. The regulations require foreign-owned “disregarded entities,” including foreign-owned single-member LLCs, to obtain an employer identification number (EIN) from the IRS. The Treasury Department explained that there is a narrow class of foreign-owned U.S. entities—including single member LLCs—that under previous rules had no obligation to report information to the IRS or to get a tax identification number. According to the Treasury Department, these “disregarded entities” can be used to conceal the foreign owners of non-U.S. assets or non-U.S. bank accounts. The final regulations treat disregarded entities wholly owned by one foreign person as a domestic corporation separate from its owner solely for purposes of Section 6038A reporting. These otherwise disregarded entities are now subject to the reporting and record-keeping requirements that currently apply to 25 percent foreign-owned U.S. corporations. As a result, these entities must file Form 5472. The regulations do not affect the entity’s classification for other purposes—for example, such entities are still disregarded for federal income tax computation purposes.