Foreign owners of single-member US LLCs to report to tax authority

13 December 2016, the US Treasury Department and the IRS released final regulations governing the treatment of domestic disregarded entities (DREs) that are wholly owned by a foreign person for the limited purposes of the reporting, record maintenance and associated compliance requirements that apply to 25% foreign-owned domestic corporations under Code Sec. 6038A.

In order to strengthen financial transparency and prevent the use of companies to engage in illicit activities, the proposed regulations require foreign-owned ‘disregarded entities’, including foreign-owned single-member limited liability companies (LLCs), to obtain an employer identification number (EIN) from the IRS.

The Treasury Department said DREs could be used to shield the foreign owners of non-US assets or non-US bank accounts. By treating a domestic DRE that was wholly owned by a foreign person as a domestic corporation separate from its owner in respect of reporting and compliance requirements, the regulations would allow the IRS to determine whether there was any tax liability, and if so, how much, and to share information with other tax authorities.

The final regulations are effective 13 December 2016, and apply to tax years beginning on or after 1 January 2017 and ending on or after 13 December 2017.