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Are You An Owner Of A US Disregarded Entity? If So, New Reporting Potentially Now Applies

This is a reminder that the IRS now require the annual filing of Form 5472 in respect of disregarded U.S. entities (such as US LLC's) which are wholly-owned by foreign persons.

The first reporting year is 2017, with returns being filed in 2018 (filing dates detailed below).

To confirm, the final regulations requiring this reporting treat the US disregarded entity wholly owned by a foreign person as a stand-alone domestic corporation solely for the purpose of information reporting. The previous tax characteristics of the entity remain unchanged.

There is no filing threshold for this form. Even if the disregarded entity has no or minimal activity (such as a US LLC holding US real estate for non-US persons) a Form 5472 will still be required.

The following information will be required to be disclosed:

  • Identifying information of the disregarded entity,
  • Principal place & nature of business,
  • Residency of each Person (which includes individuals, trusts and corporations) which is the sole owner of the disregarded entity.

In order to file Form 5472, a "pro-forma" Form 1120 will need to be filed in the name of the US disregarded entity. The Form 1120 should only include basic identifying information.

The due date for filing Form 1120 (for a calendar year 2017 return) is April 16 2018. This due date, by formal request submitted prior to the original due date, can be extended.

Each disregarded entity will also have to obtain a US Employer Identification Number (EIN). If not already obtained, this should be requested as soon as possible.

Although this is information reporting, as opposed to an income tax return, failure to file Form 5742 in a timely manner can give rise to a penalty of $10,000 per failure. Additional penalties may also be imposed.

If any assistance is required for this compliance, Frank Hirth would be very happy to discuss further.


Iain Younger, Frank Hirth

Article Source - published 10 Jan 2018

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