United States: New IRS Filing Requirements for Disregarded LLCs

The IRS and the Department of the Treasury have released final regulations regarding the Treatment of Certain Domestic Entities Disregarded as Separate From Their Owners as Corporations for Purposes of Section 6038A, which became effective December 16, 2016. The Regulations apply to all existing US disregarded entities that are wholly owned by non-US persons. Affected disregarded entities should apply for an Employer Identification Number (EIN) in order to complete IRS Form 5472.

In addition to filing Form 5472, the disregarded entity must keep permanent books of account and other records as prescribed under Code Section 6038A. The purpose of this requirement is to ensure the entity maintains records sufficient to establish the accuracy of the information reported on Form 5472 and the correct US tax treatment of reportable transactions.

A reportable transaction includes “any sale, assignment, lease, license, loan, advance, contribution, or other transfer of any interest in or a right to use any property or money, as well as the performance of any services for the benefit of, or on behalf of, another taxpayer.” Any contribution to or distribution from a disregarded entity to a non-US related person is also considered a reportable transaction.

Failure to file a Form 5472 or maintain the supporting records as required could result in a $10,000 civil penalty for each failure. Criminal penalties could also apply for failure to submit information or for filing false information.