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The Basics
A Single Member LLC (SMLLC)
is a Limited Liability Company (LLC)
created by state statute
with only one member (owner)
Entity
type
LLC
No. of
Owners:
1
Filing
Deadline:
04/15
Non filing
Penalty:
$25k
Tax Filing Package
A Complete Tax Filing Package for Your Single Member LLC (SMLLC)
+
Form 5472
Form 1120
+
CPA Review
IRS E-File
IRS Filing Receipt
+
Audit Protection
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Single Member LLC
What is Single Member LLC?
A Single Member LLC (SMLLC) is a Limited Liability Company (LLC) created by state statute with only one member. This means that 100% of the LLC is owned by one owner. If there are more than one owners, meaning two or more, the LLC is a Multi Member LLC.
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What is Foreign owned Single Member LLC?
When the Single Member LLC (SMLLC) is owned by a Non-U.S.-Resident, it is defined as Foreign owned Single Member LLC and special tax treatment and tax filing requirements apply.
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How is Foreign owned Single Member LLC taxed?
In most cases, Foreign Owned Single Member LLC (SMLLC) 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).
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 Single Member LLC need to file annual tax return?
In most cases, yes. Although a Foreign Owned Single Member LLC (SMLLC) does not pay U.S. income tax if it meets certain conditions, it must file annual federal tax return including forms 1120 & 5472 and all related schedules and statements.
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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 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 Single Member LLC if failing 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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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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I had no activity, do I need to submit annual tax return?
Yes - Even if you did not have any activity and you have not used the LLC during the tax year, your Foreign Owned Single Member LLC (SMLLC) must file annual federal tax return including forms 1120 & 5472 and all related schedules and statements.
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Form 5472
What is form 5472?
Form 5472 is an Information Return that is used to report 25% or more foreign ownership of a foreign-owned LLCs, US Corporations or a Foreign Corporation Engaged in a US Trade or Business. Form 5472 is issued by the IRS (Internal Revenue Service) which is the U.S.'s tax collection agency and administers the Internal Revenue Code enacted by Congress.
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Who must file form 5472?
There are 3 entity types that must file form 5472:
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Foreign-owned LLCs*
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US Corporations
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Foreign Corporation Engaged in a US Trade or Business.
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Foreign Sole Proprietor Person Engaged in a US Trade or Business.
* Foreign-owned LLCs include Single Member LLC and Multi Member LLC.
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Form 5472 for Foreign-owned U.S. LLC / Corporation / Foreign Sole Proprietor
Single Member LLC or Multi Member LLC or a 25% Foreign-Owned U.S. Corporation (FOCC) or a Foreign Corporation Engaged in a U.S. Trade or Business or a Foreign Sole Proprietor Engaged in a US Trade or Business must file form 5472.
While a foreign-owned U.S. DE has no income tax return filing requirement, as a result of final regulations under section 6038A, it is required to file a pro forma Form 1120 with Form 5472 attached by the due date (including extensions) of that Form 1120.
The only information required to be completed on Form 1120 is the name and address of the foreign-owned U.S. DE and items B and E on the first page. The foreign-owned U.S. DE has the same tax year used by its owner for U.S. tax filing requirements or, if none, the calendar year.
Foreign Corporation Engaged in a U.S. Trade or Business must file form 5472 and form 1040NR.
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What is the deadline to file form 5472?
In general, the deadline to the LLC's annual federal tax return including forms 1120 & 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 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 5472: 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 5472: 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 5472: 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 5472: 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 5472: Disregarded entity (DE)
A DE is an entity that is disregarded as an entity separate from its owner for U.S. income tax purposes under Regulations sections 301.7701-2 and 301.7701-3. See the instructions for Form 8832.
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Form 5472: 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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Form 1120
What is form 1120?
Form 1120, Issued by the IRS (Internal Revenue Service) which is the U.S.'s tax collection agency and administers the Internal Revenue Code enacted by Congress. It is used to report:
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U.S. Corporation income, gains, losses, deductions, credits, and to figure the income tax liability of a corporation.
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Foreign-owned LLCs that are required to file form 5472, also known as Foreign-owned U.S. DE.
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Who must file form 1120?
There are 3 entity types that must file form 1120:
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Foreign-owned LLCs: Foreign-owned U.S. DE
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US Corporations
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Foreign Corporation Engaged in a US Trade or Business.
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What is the deadline to file form 1120?
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 form 1120?
A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $435. The penalty will not be imposed if the corporation can show that the failure to file on time was due to reasonable cause.