Attorney James P. Robinson Examines Regulations of Disregarded Entities with Foreign Ownership

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Attorney James P. Robinson, of Robinson & Associates, PLLC, lists the top four tips regarding regulations affecting the reporting requirements of disregarded U.S. legal entities with foreign ownership.

Attorney James P. Robinson

These structures will now be required to file the forms mentioned above. As the regulations apply to all tax years after 2016, even structures that are unwound immediately will be required to file the required reports for tax year 2017.

The U.S. Treasury Department and Internal Revenue Service have recently issued final regulations regarding disregarded U.S. legal entities with foreign ownership. “The regulations took effect on December 31, 2016, and apply to all following tax years,” said James P. Robinson, principal attorney of Robinson & Associates, PLLC.

Robinson lists the following four tips about regulations affecting the reporting requirements of disregarded U.S. legal entities with foreign ownership:

No. 1: Foreign-owned single-member LLCs. The regulations apply to all disregarded entities formed anywhere in the United States with foreign ownership. “The most common such disregarded entity today is overwhelmingly the single-member limited liability company (LLC), which has not elected to be regarded for tax purposes as a corporation,” said Robinson. “Such single member LLCs need not file tax returns and need not receive Tax ID numbers. The regulations basically regard all such foreign-owned single member LLCs as not disregarded for certain purposes.”

No. 2: Form 5472. These entities must now file IRS Form 5472, and maintain certain records required for all applicable transactions with the LLC’s foreign owners. This also means that these entities will be required to obtain tax ID numbers, identifying a responsible party. “In other words, the disregarded foreign-owned entities will have to comply with all reporting and recordkeeping requirements of a 25% foreign-owned corporation,” noted Robinson.

No. 3: Impact on succession planning structures. Some not uncommon succession and estate plans for non-U.S. persons involve U.S. disregarded entities (single member LLCs) owned by a foreign trust with foreign grantors. “Prior to the new regulation, these entities filed no returns or reports with U.S. tax authorities,” said Robinson. “These
structures will now be required to file the forms mentioned above. As the regulations apply to all tax years after 2016, even structures that are unwound immediately will be required to file the required reports for tax year 2017.”

No. 4: Other reporting still required. Other U.S. reporting requirements, such as the foreign bank account reporting, will continue to apply. “While the new regulations add new obligations and, undoubtedly, additional costs for foreign-owned disregarded entities, they are now effectively just a cost of doing business,” concluded Robinson. “The increased cost and the ‘hassle factor’ can best be contained by setting up good corporate governance structures and procedures based on sound legal and tax guidance.”

About James P. Robinson, Robinson & Associates, PLLC
James P. Robinson is the founder of Robinson & Associates, PLLC, a law firm with a national and international reach. Robinson & Associates has developed a practice providing comprehensive legal representation to businesses and entrepreneurs for issues related to business and commercial law, insurance disputes and international law. For more information, call (210) 822-2510, or visit http://www.jamesprobinsonlaw.com. The law office is located at 700 N. St. Mary’s Street, Suite 400, San Antonio, TX.

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