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USA federal income tax laws changed significantly in December of 2016, resulting in new reporting requirements for disregarded entities.
Even though a United States’ disregarded entity is not required to file a US income tax return, the entity must still comply with the new filing requirements for Form 5472.
Under the new rules of the revised Tax Cuts and Jobs Act, any single, foreign-owned disregarded entity in the US (for instance, a US single member LLC), is now required to file form 5472 and failure to do so on time will result in a Form 5472 penalty.
The new form 5472 reporting requirement is applicable to taxable years that begin on or following January 1st, 2017.
Form 5472 is required in order to report any transaction with the sole owner or with an affiliate of the sole owner, just as if the disregarded entity was a US corporation.
The definition of “reportable transactions” have been expanded to include the following:
- Contributions to the foreign-owned US disregarded entity
- Contributions from the foreign-owned US disregarded entity
- Any amount paid (or received) for the entity’s formation, acquisition, dissolution or disposition
The new reporting requirements for disregarded entities adds additional hurdles for foreign-owned disregarded entities. They now must address the following:
- Obtaining a US employer identification number (EIN) - this can be a difficult process for foreign owners that do not already have a US taxpayer identification number
- Attaching form 5472 to a pro forma form 1120 (“U.S. Corporation Income Tax Return”) - this means that they must now file a US income tax return (the pro forma form 1120)
Extension of Time to File
A reporting corporation can request an “extension of time to file” by filing form 7004. The extension must be filed by the regular due date of the return to request a six-month extension of time to file.
If you still have questions about the new reporting requirements for disregarded entities, please contact a member of the Manning Elliott Tax Team.
This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.