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The Basics
A Multi Member LLC (MMLLC)
is a Limited Liability Company (LLC)
created by state statute
with 2 or more members (owners)
Entity
type
LLC
No. of
Owners:
2+
Filing
Deadline:
03/15
Non filing
Penalty:
$25k
Tax Filing Package
A Complete Tax Filing Package for Your Multi Member LLC (MMLLC)
+
Form 1065
Schedule K-1
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CPA Review
IRS E-File
IRS Filing Receipt
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Audit Protection
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Multi Member LLC
What is Multi Member LLC?
A Multi Member LLC (MMLLC) is a Limited Liability Company (LLC) created by state statute with two or more members. This means that the LLC is owned by more than one owner.
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What is Foreign owned Multi Member LLC?
When the Multi Member LLC (MMLLC) is owned by Non-U.S.-Residents, it is defined as Foreign owned Multi Member LLC and special tax treatment and tax filing requirements apply.
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How is Foreign owned Multi Member LLC taxed?
In most cases, Foreign Owned Multi Member LLC (MMLLC) does not pay U.S. income tax if:
1. All of the owners are non U.S. citizens / residents
2. The LLC does not have U.S. employees or freelancers
3. There is no physical office, warehouse, shipping facility or other type of physical presence in the U.S.
If the LLC has U.S. residents / Citizen owners, or it has U.S. employees / freelancers, or it has a physical presence in the U.S., the LLC's income is considered: Effectively Connected Income (ECI).
A Multi Member LLC is by default a partnership for U.S. federal tax purposes. An LLC that is a partnership must file an annual Form 1065 tax return. The Form 1065 tax return includes Schedules K-1, which report the allocable share of income and expense to each partner.
Generally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States connected with the conduct of that trade or business is considered to be Effectively Connected Income (ECI). This applies whether or not there is any connection between the income, and the trade or business being carried on in the United States, during the tax year.
Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as ECI. You usually are considered to be engaged in a U.S. trade or business when you perform personal services in the United States. Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Deductions are allowed against ECI, and it is taxed at the graduated rates or lesser rate under a tax treaty. The discussions that follow will help you determine whether you are engaged in a trade or business in the United States.
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Does a Foreign owned Multi Member LLC need to file annual tax return?
In most cases, yes. Although a Foreign Owned Multi Member LLC (MMLLC) does not pay U.S. income tax if it meets certain conditions, it must file annual federal tax return including Form 1065 tax return. The Form 1065 tax return includes Schedules K-1, which report the allocable share of income and expense to each partner. If the LLC has non-U.S. members as partners, there is no Form 5472 filing requirement for the LLC.
In addition to the Schedule K-1 for each partner, the LLC may have to file Forms 8804 and 8805 if the LLC has U.S. source income effectively connected with a U.S. trade or business.
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What is the filing deadline for LLC / Corp tax filing?
Filing deadline:
Single member LLC: April 15 (if it is weekend, April 18).
Multi Member LLC: March 15 (if it is weekend, March 18).
C. Corporation (INC): April 15 (if it is weekend, April 18)
Sole Proprietor Person: April 15 (if it is weekend, April 18)
Extension:
We can extend the filing deadline by 6 months. Please contact us if you need an extension.
Please note - the extension only applies for filing the actual tax return, but it does not apply to any tax payment you owe or need to make for the year (estimated or actual)
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Do I need to submit annual tax return even if I did not have any activity?
In most cases, yes. Even if you did not have any activity and you have not used the LLC during the tax year, your Foreign Owned Multi Member LLC (MMLLC) must file annual federal tax return including forms 1065, Schedules K-1 and all other related schedules and statements.
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Which information do I need to provide?
To prepare your annual tax return and all related forms, statements and schedules - we will ask you for the following information:
Personal information for the owner:
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Full name:
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Marital status:
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Home address:
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% of ownership:
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Country of citizenship:
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Country of residency:
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Any ITIN or SSN?
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Any U.S. visa during the year?
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Did you have any other U.S. visa in the past?
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Days spent in the U.S. during the year
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Did you file taxes in your country of residency
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Any income from U.S. Source during the tax year?
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Any previous year tax return? (if yes send us copy)
Company:
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Company name:
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Company EIN:
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State of incorporation:
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Date of incorporation:
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Company mailing address:
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What does the company do (short description):
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Do you have any US employees?
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Did you ship any products from the U.S.?
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Did you have any physical location in the U.S.?
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Where is the company management located?
Manager information:
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Full name:
Did the company have any activity? Yes / No
If yes, please send us:
1. Income statement
Download Excel sample: https://templates.office.com/en-us/income-statement-1-year-tm16410109
2. Balance sheet
Download Excel template: https://templates.office.com/en-us/balance-sheet-tm03934533
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How long does it take to prepare everything?
The process is easy and fast:
Step 1: Create your account (2 minutes)
Step 2: Answer few questions (10 minutes)
Step 3: We prepare the forms and our network of top tax experts (TTE) review your filing to make sure it is 100% accurate and in full compliance with the IRS requirements (about 24 hours)
Step 4: You digitally sign the forms (5 minutes)
Step 5: Filing and submission to the IRS (5 minutes)
On average the entire process takes no more than 24-48 hours.
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Do you get any penalty if you do not file the annual tax return?
Yes, the IRS (Internal Revenue Service) which is the U.S.'s tax collection agency and administers the Internal Revenue Code enacted by Congress started to impost aggressive penalties on Foreign owned Multi Member LLC if failing to file form 1065:
For partnership taxable years beginning in 2021, a return for purposes of IRC Sec. 6698 includes Form 1065, Schedule K-1 (Form 1065), and Schedules K-2 and K-3. Currently, the penalty imposed on the partnership is calculated at $210 per partner per month that the return is late or incomplete, for a maximum of 12 months.
If the LLC was required to file Form 5472,
A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3.
Note. Filing a substantially incomplete Form 5472 constitutes a failure to file Form 5472.
Each member of a group of corporations filing a consolidated information return is a separate reporting corporation subject to a separate $25,000 penalty and each member is jointly and severally liable.
If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $25,000 will apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period ends.
Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.
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Form 1065
What is form 1065?
Form 1065 is an informational tax return filed annually to report the income, gains, losses, deductions and credits from the operation of a partnership. In addition to Form 1065, partnerships must also submit Schedule K-1, a document prepared for each partner.
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Who must file form 1065?
All domestic partnerships must file Form 1065: U.S. Return of Partnership Income. This includes limited liability companies(LLCs) classified as domestic partnerships and headquartered in the U.S. The IRS defines a partnership as two or more people who carry on a trade or business together.
Foreign partnerships with income in the U.S. must also file Form 1065.
Nonprofit religious organizations also file this form. They must show that profits were given to their members as dividends, regardless of whether the dividends were distributed.
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Form 1065 for Foreign-owned U.S. LLC
Multi Member LLC must file form 1065 and Schedules K-1.
Form 5472 - If the LLC has non-U.S. members as partners, there is no Form 5472 filing requirement for the LLC.
For any LLC there are some minimum filing obligation. Either a Form 5472 filing for the foreign-owned U.S. disregarded entity (Single member LLC) or a Form 1065 filing for a multimember LLC taxed as a partnership (Multi Member LLC). The IRS imposes steep penalties for failing to timely file these returns.
A foreign-owned U.S. disregarded LLC that fails to timely file Form 5472 is subject to a $25,000 penalty. Failing to file Form 1065 is subject to a penalty of $205 for each month the return is late, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year the return is due.
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What is the deadline to file form 1065?
In general, the deadline to the LLC's annual federal tax return including forms 1065 & 5472 and all related schedules and statements is April 15 of each year for the previous tax year. This means that the deadline to file the 2022 tax return is April 15, 2023. If April 15 falls on a weekend, the deadline will be extended to April 18.
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What are the penalties for not filing form 1065 and related forms and Schedules?
A foreign-owned U.S. disregarded LLC that fails to timely file Form 5472 is subject to a $25,000 penalty. Failing to file Form 1065 is subject to a penalty of $205 for each month the return is late, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year the return is due.
A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3.
Note. Filing a substantially incomplete Form 5472 constitutes a failure to file Form 5472.
Each member of a group of corporations filing a consolidated information return is a separate reporting corporation subject to a separate $25,000 penalty and each member is jointly and severally liable.
If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $25,000 will apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period ends.
Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.
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Form 1065: Reporting corporation
A reporting corporation is either:
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A 25% foreign-owned U.S. corporation (including a foreign-owned U.S. disregarded entity (DE)), or
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A foreign corporation engaged in a trade or business within the United States.
25% foreign owned.
A corporation is 25% foreign owned if it has at least one direct or indirect 25% foreign shareholder at any time during the tax year.
25% foreign shareholder. Generally, a foreign person (defined later) is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either:
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The total voting power of all classes of stock entitled to vote, or
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The total value of all classes of stock of the corporation.
The constructive ownership rules of section 318 apply with the following modifications to determine if a corporation is 25% foreign owned. Substitute “10%” for “50%” in section 318(a)(2)(C). Do not apply sections 318(a)(3)(A), (B), and (C), so as to consider a U.S. person as owning stock that is owned by a foreign person.
Direct 25% foreign shareholder. A foreign person is a direct 25% foreign shareholder if it owns directly at least 25% of the stock of the reporting corporation by vote or value.
Ultimate indirect 25% foreign shareholder. An ultimate indirect 25% foreign shareholder is a 25% foreign shareholder whose ownership of stock of the reporting corporation is not attributed (under the principles of sections 958(a)(1) and (2)) to any other 25% foreign shareholder. See Rev. Proc. 91-55, 1991-2 C.B. 784.
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Form 1065: Related party
A related party is:
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Any direct or indirect 25% foreign shareholder of the reporting corporation,
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Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation,
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Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to a 25% foreign shareholder of the reporting corporation, or
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Any other person who is related to the reporting corporation within the meaning of section 482 and the related regulations.
“Related party” does not include any corporation filing a consolidated federal income tax return with the reporting corporation.
The rules in section 318 apply to the definition of related party with the modifications listed under the definition of 25% foreign shareholder, earlier.
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Form 1065: Reportable transaction
A reportable transaction is:
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Any type of transaction listed in Part IV (for example, sales, rents, etc.) for which monetary consideration (including U.S. and foreign currency) was the sole consideration paid or received during the reporting corporation’s tax year;
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Any transaction or group of transactions listed in Part IV, if:
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Any part of the consideration paid or received was not monetary consideration, or
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Less than full consideration was paid or received; or
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Any transaction listed in Part V.
Transactions with a U.S. related party, however, are not required to be specifically identified in Parts IV, V, and VI.
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Form 1065: Foreign Person
A foreign person is:
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An individual who is not a citizen or resident of the United States;
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An individual who is a citizen or resident of a U.S. possession who is not otherwise a citizen or resident of the United States;
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Any partnership, association, company, or corporation that is not created or organized in the United States;
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Any foreign estate or foreign trust described in section 7701(a)(31); or
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Any foreign government (or agency or instrumentality thereof) to the extent that the foreign government is engaged in the conduct of a commercial activity as defined in section 892.
However, the term “foreign person” does not include any foreign person who consents to the filing of a joint income tax return.
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Form 1065: Foreign-owned U.S. DE
A foreign-owned U.S. DE is a domestic DE that is wholly owned by a foreign person. For tax years beginning on or after January 1, 2017, and ending on or after December 13, 2017, a foreign-owned U.S. DE is treated as an entity separate from its owner and classified as a corporation for the limited purposes of the requirements under section 6038A that apply to 25% foreign-owned domestic corporations. See the final regulations at IRS.gov/irb/2017-03_IRB#TD-9796.
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Schedule K-1
What is Schedule K-1?
Schedule K-1 is a schedule of IRS Form 1065, U.S. Return of Partnership Income. It’s provided to partners in a business partnership to report their share of a partnership’s profits, losses, deductions and credits to the IRS.
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Who must file Schedule K-1?
If you’re a partner or a member (owner) of any of the following:
General partnership
Limited partnership
Limited liability partnership
Multi Member LLC (limited liability company) that has elected to be taxed as a partnership
You need to file at least the following:
1. Form 1065
2. Schedule K-1
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What is the deadline to file Schedule K-1?
In general, the deadline to the form 1120 and all related schedules and statements is April 15 of each year for the previous tax year. This means that the deadline to file the 2022 tax return is April 15, 2023. If April 15 falls on a weekend, the deadline will be extended to April 18.
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What are the penalties for not filing Schedule K-1?
For each failure to furnish Schedule K-1 to a partner when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $280 penalty may be imposed for each Schedule K-1 for which a failure occurs. The maximum penalty is $3,426,000 for all such failures during a calendar year. If the requirement to report correct information is intentionally disregarded, each $280 penalty is increased to $570 or, if greater, 10% of the aggregate amount of items required to be reported. There is no limit to the amount of the penalty in the case of intentional disregard.