Foreign owners of single-member US LLCs now to report to IRS

Final regulations that will require foreign owners of single-member US limited liability corporations, or LLCs, to report the fact of their interest to the US tax authority have been issued.

Such owners – until now known as “disregarded entities”, or DREs – are now obliged to file a report with the IRS, beginning on 1 January 2017, following the publication last week by the US Internal Revenue Service of its final regulations on the matter.

Wholly-owned LLCs have until now been considered as ‘disregarded entities’ (DREs), and didn’t need to be reported to the US tax authorities. But with the growing international move towards greater transparency, the Treasury and IRS jointly announced plans to introduce this new regulation in May, in the Federal Register.

In an alert on its website, the US-based law firm of Sutherland Asbill & Brennan, which has international offices in London and Geneva, notes that the new rule with respect to disregarded entities emerged in the immediate aftermath of the Panama Papers leak in April, amid “international concern that foreign persons were concealing assets through US entities that are disregarded for US federal income tax purposes”.

It goes on to note that the new regulations “treat domestic disregarded entities wholly owned, directly or indirectly, by foreign persons as domestic corporations separate from their owner solely for purposes of triggering reporting, record maintenance, and associated compliance requirements that apply to 25% foreign-owned domestic corporations”.

To read the Sutherland alert on DREs in full, click here.

To read the final regulations on the Federal Register’s website,  click here.



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