A US single-member LLC owned by a non-US person is ignored for US income tax but treated as a corporation for one reporting rule. For every year in which money or property passes between the LLC and its owner, it files a pro forma Form 1120 with Form 5472 (opens the official IRS page in a new tab) attached, on paper or by fax, and a missed form carries a penalty of $25,000.
This post is for a UK resident who is not a US citizen or green card holder and who owns a US LLC alone. Our post on the British owner of a Delaware LLC covers who taxes the profit. This one covers the filing itself: why it applies, which transactions count, how the forms are completed and sent, the identification number, the penalty and the UK position. It extends the entity section of our guide to US-UK tax for founders, fund managers and executives.
Why is a foreign-owned single-member LLC treated as a corporation
Because the regulations under section 6038A say so for this one purpose. A US entity that is disregarded for income tax and wholly owned by one foreign person is classified as a corporation for the limited purposes of the section 6038A reporting rules, for tax years beginning on or after 1 January 2017.
Section 6038A is the rule that makes a US corporation with a foreign shareholder owning at least a quarter of its vote or value report its dealings with that shareholder and other related parties. The Form 5472 instructions call such a company a reporting corporation. Treating a foreign-owned LLC as a corporation brings it into the same regime, so the LLC is the filer and the foreign owner is reported on the lines meant for the foreign shareholder.
Nothing else about the LLC changes. The IRS still treats a single-member LLC (opens the official IRS page in a new tab) as disregarded for income tax, so the pro forma corporate return carries no income, deductions or tax. Whether the owner owes any US income tax is a separate question about US trade or business and the treaty, and the answer does not affect whether Form 5472 is due.
Which transactions with the owner must be reported
Almost any transfer of money, property or services between the LLC and its owner. The instructions require a foreign-owned LLC to report other transactions in Part V, including amounts connected with forming, dissolving, acquiring or disposing of the entity, and contributions to it and distributions from it.
The definition behind Part V comes from the transfer pricing regulations, which describe a transaction as any sale, lease, licence, loan, advance, contribution or other transfer of property or money, however effected and whether or not documented, together with services performed for or on behalf of another taxpayer. Money the owner pays to cover the LLC's costs falls within that wording, and so does LLC money used to meet the owner's personal bills.
The test is whether something passed between the two, and turnover is irrelevant. An LLC that made no sales can still have reportable transactions because its owner paid the formation fee and the state tax. The usual items look like this.
- The owner's initial and later capital contributions to the LLC
- Formation, registered agent and state fees paid by the owner personally
- Distributions and drawings paid from the LLC to the owner
- Loans in either direction, and interest on them
- Fees, royalties or rent passing between the owner and the LLC
- Amounts connected with closing or selling the LLC
How are the pro forma Form 1120 and Form 5472 completed
The pro forma Form 1120 (opens the official IRS page in a new tab) is a cover sheet. The instructions say only the LLC's name and address and items B and E on the first page need completing, and the words Foreign-owned U.S. DE are written across the top. Form 5472 carries the substance and is attached behind it.
Form 5472 identifies the LLC in Part I and the foreign owner in Part II, where the instructions say the owner's details go on the lines provided for the foreign shareholder. The owner's foreign taxpayer identification number is entered if one exists, and None or N/A if not. Part III describes the related party, which for most single-member LLCs is the owner again.
Part IV lists monetary transactions with a foreign related party by category, and Part V is the box a foreign-owned LLC ticks for its other transactions, with a statement describing them attached. Part VII asks additional questions of every filer. A separate Form 5472 is required for each related party with which the LLC had a reportable transaction, so an LLC that also dealt with the owner's UK company may need more than one.
- Pro forma Form 1120: name, address, items B and E, and the heading across the top
- Form 5472 Parts I, II and III: the LLC, its owner and the related party
- Part IV: payments and receipts with a foreign related party by category
- Part V: the box and an attached statement of contributions, distributions and other dealings
- Part VII: additional questions every filer answers
How does the LLC get an EIN without a US number
It applies on Form SS-4 by telephone, fax or post, because the online service is closed to applicants without a US taxpayer number. The SS-4 instructions confirm that a disregarded entity may need an employer identification number to file Form 5472, and they set out the wording to use.
On the form, the LLC ticks Other as its type of entity and describes itself as a foreign-owned US disregarded entity filing Form 5472, and gives the same description as its reason for applying. Where the responsible party has no Social Security number and no ITIN (opens the official IRS page in a new tab) and cannot obtain one, the instructions require the word foreign to be entered in the space for that number.
International applicants can telephone the IRS during US working hours, fax the form to the international fax line, or post it to the international operation in Cincinnati. The EIN belongs to the LLC and goes on the pro forma return and on Form 5472. It does not give the owner a personal US filing number. If the owner has a US return of their own, such as Form 1040-NR, that is a separate matter and may need an ITIN.
When and how is Form 5472 filed for a foreign-owned LLC
By the due date of Form 1120, including extensions, and only by fax or post. The instructions state that a foreign-owned LLC cannot file Form 5472 electronically and give a dedicated fax number and Ogden address for it, which differ from the addresses in the Form 1120 instructions.
The LLC's tax year follows its owner's US tax year, and where the owner has none, as is usual for a UK resident with no US return, it is the calendar year. A calendar-year Form 1120 falls due on the fifteenth day of the fourth month after the year ends, which is the same date as 15 April for individuals. An extension is requested on Form 7004, also by fax or post, before the regular due date, with the same heading written across its top.
The fax number and address can change, so check the current Form 5472 instructions on irs.gov before each filing. Keep the fax transmission report or proof of posting with the file. The instructions also require the LLC to keep books and records that support what the form reports, and failing to keep them is penalised in the same way as failing to file.
What happens if Form 5472 is late or was never filed
The IRS can assess $25,000 for each form not filed, filed late or filed substantially incomplete, and for failing to keep the required records. If the failure continues beyond the period allowed after the IRS sends notice, a further penalty of the same amount accrues for each related party for each further period set out in the instructions.
The penalty does not depend on any tax being owed. An owner who finds that past years were missed can prepare the outstanding returns now. The IRS delinquent international information return submission procedures (opens the official IRS page in a new tab) describe filing late returns with a reasonable cause statement where the taxpayer is not under examination or investigation and has not been contacted about them.
That route does not guarantee relief. The IRS page says penalties may still be assessed under existing procedures, and a reasonable cause statement may need to be sent again in reply to a notice. Where a penalty has already been charged, the general penalty relief (opens the official IRS page in a new tab) routes and our IRS representation service are the next step. What succeeds depends on why the forms were missed and on the records available.
How does HMRC see the same LLC
Generally as a company, though Form 5472 has no UK equivalent and plays no part in the UK analysis. HMRC's International Manual lists the US LLC as opaque, describes that list as a general view and explains that its view of a particular entity can differ on the facts.
The consequences are covered in our post on the British owner of a Delaware LLC: how drawings may be taxed, whether the LLC could be UK resident for Corporation Tax, and the Anson decision. The point for this post is that the transactions reported on Form 5472 are the same flows HMRC will look at, so one ledger of contributions and drawings serves both countries.
Take a UK-resident graphic designer in Leeds who formed a Wyoming LLC to invoice American clients. In its first year she paid the formation and registered agent fees from her own card, transferred money into its account and later drew the profit. The LLC needs an EIN, a pro forma Form 1120 and a Form 5472 reporting those three types of transaction, and she gives US clients Form W-8BEN or the certificate her facts require. On the UK side, her Self Assessment return has to reflect HMRC's view of the LLC. We prepare both through our business tax returns service, and our business incorporation service compares an LLC with a UK company before one is formed. The guide to US-UK tax for founders, fund managers and executives sets out how entity choice fits with the rest of a founder's position.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
