– Melinda Fellner Bramwit, Partner, Rimon, P.C.
Changes to US Treasury Regulations Under Section 6038 of the Internal Revenue Code could affect filings for single member LLCs owned by non-US individuals or entities.
Many non-resident individuals and non-resident entities maintain title to real estate and other assets in single member limited liability companies incorporated under state law in the United States, for a variety of reasons. Under Federal tax law, such an entity is disregarded for tax purposes unless the owner elects otherwise. From a corporate perspective, these limited liability companies can be used to harness assets in an entity separate from the owner, providing a layer of corporate protection and perhaps anonymity for the ultimate owner. These entities are also reasonably simple to form and maintain.
Changes to U.S. Treasury Regulations effective December 13, 2016, throw a wrinkle into the use of this malleable entity in some circumstances, which can be managed with some planning.
These changes require that a non-resident owning 100% of a United States limited liability company (“LLC”) file a Form 5472, an information return, when certain transactions occur between certain parties (“related” parties) and the LLC.
The following example from the regulations illustrates a scenario where this filing would be triggered:
In year 1, F, a foreign corporation forms and contributes assets to US-LLC, a U.S. limited liability company that is a disregarded entity for US Federal tax purposes. In year 2, F contributes funds to US-LLC, and in year 3, US-LLC makes a payment to F.
Under the modified regulations, F’s payment to US-LLC as well as US-LLC’s payment back to F are both reportable transactions for which a Form 5472 would be required with respect to US-LLC.
This is a simple, yet common situation which triggers the filing requirement. It is important to note that this requirement is applicable to tax years of entities beginning on or after January 1, 2017 and ending on or after December 13, 2017 (Note: This is not a typo. The date is the 13th, not the 31st). As such, there is a window of opportunity for tax planning to avoid the requirement of this form and if you want to know more or need help, don’t hesitate to contact me, Melinda Fellner Bramwit, a partner here at Rimon, P.C.
Of course, if you need assistance, you may always contact me, Joe Rosenbaum, or any of the lawyers with whom you routinely work at Rimon Law.