If you’re an individual foreign investor who purchased or transferred your U.S. asset through a single member entity/disregarded entity as described below, you may have an additional filing requirement for the 2017 tax year.
The U.S. Treasury Department and Internal Revenue Service (IRS) information reporting applies to U.S. disregarded entities (such as single-member LLCs, revocable living trusts, and land trusts) that are 100% owned by one foreign person. This may also apply to revocable living trusts and land trusts owned by one or more foreign persons. The new regulations do not create an additional tax obligation. However, there’s a new requirement to file an informational return with the IRS (Form 5472) and a $25,000 fine for noncompliance.
IRS Form 5472 applies to foreign-owned disregarded entities starting with taxable years beginning on or after January 1, 2017 and ending on or after December 13, 2017.
To satisfy the informational reporting requirements, disregarded entities must obtain an Employer Identification Number (EIN) for the entity. An EIN is a nine-digit number assigned by the IRS, also referred to as a Federal Tax Identification Number.
What’s Reported on IRS Form 5472?
Information to report to the IRS includes any exchange of money or property between the disregarded entity and its foreign member. Examples of an exchange are a sale, assignment, lease, license, loan, advance, contribution, or other transfer of any interest in or a right to use any property or money. Form 5472 also includes any amounts paid or received in connection with the formation, dissolution, acquisition, and disposition of the entity, including contributions to and distributions from the entity.
The owner of the disregarded entity is required to maintain adequate books and records to support the filing of Form 5472 for as many years as necessary.
Contact us for further information or assistance regarding IRS Form 5472.
