New Form 5472 Filing Requirements: Reporting obligations of foreign-owned U.S. disregarded entities

Effective December 13, 2016, the United States Treasury issued the final regulations that treat a domestic disregarded entity wholly owned by a foreign person as a reporting entity separate from its owner for the purpose of record maintenance and associated compliance requirements that apply to 25% foreign-owned domestic corporations under Code Sec. 6038A.  As a result, new form 5472 filing requirements must be filed by a U.S. single member LLC owned by a foreign person to report transactions with the foreign owner and related parties. Reportable transactions are:

• Sales of stock in trade (inventory)
• Sales of tangible property other than stock in trade
• Platform contribution transaction payments received
• Cost sharing transaction payments received
• Rents received (for other than intangible property rights)
• Royalties received (for other than intangible property rights)
• Sales, leases, licenses, etc., of intangible property rights (e.g., patents, trademarks, secret formulas)
• Consideration received for technical, managerial, engineering, construction, scientific, or like services
• Commissions received
• Amounts borrowed
• Interest received
• Premiums received for insurance or reinsurance
• Other amounts received
• Purchases of stock in trade (inventory)
• Purchases of tangible property other than stock in trade
• Platform contribution transaction payments paid
• Cost sharing transaction payments paid
• Rents paid (for other than intangible property rights)
• Royalties paid (for other than intangible property rights)
• Purchases, leases, licenses, etc., of intangible property rights (e.g., patents, trademarks, secret formulas)
• Consideration paid for technical, managerial, engineering, construction, scientific, or like services
• Commissions paid
• Amounts loaned
• Interest paid
• Premiums paid for insurance or reinsurance
• Other amounts paid

In order to complete filing, the entity has to obtain EINs by filing a Form SS-4 with responsible party information, including the responsible party’s social security number (SSN), individual taxpayer identification number (ITIN) or EIN.  Since the taxable year for the disregarded entity is the same as the taxable year of its foreign parent, due dates for Forms 5472 correspond with the due dates of the returns for the owners.  For example, for the LLC’s owned by a foreign partnership, Forms 5472 are due on March 15, 2018, for the LLC’s owned by a foreign corporation or an individual, the due date is April 15, 2018.  Obtaining an ITIN can often take several months so taxpayers should consult their tax advisors and begin the application process in February of 2018.