IRS Issues Final Regulations for Foreign Owned Single Member LLCs

The Internal Revenue Service (“IRS”) issued final regulations that will increase reporting requirements for certain foreign owned single member limited liability companies (“LLC”). When a single member LLC is formed, for federal tax purposes, it is a disregarded entity by default. This means that income, loss, and subsequent tax obligations will pass through the entity to the owner. The final regulations change the default rule when a LLC is wholly owned by a foreign person, requiring the LLC to be treated as a domestic corporation separate from its owner.

By having these LLCs treated as a domestic corporation, separate from its owner, the LLC must obtain an Employer Identification Number (EIN) and annually file an information return, Form 5472. The LLC must also maintain records of reportable transactions with the foreign owner or foreign related parties. Ultimately, the IRS believes that this will ensure that disregarded LLCs aren’t used by foreign owners to shield assets from the IRS.

Although this change is designed to prevent abusive practices, this has a practical impact for foreign owners of a domestic LLC, ultimately increasing administrative requirements. For further information, the IRS regulation can be found at the following address: https://www.irs.gov/irb/2016-21_IRB/ar19.html

© 2017 Vandenack Weaver LLC
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FBAR Deadline Moved to April 15 for 2017 Filings

The Reports of Financial Bank and Financial Accounts (FBAR) will be due April 15, starting for returns due in 2017, for taxable year 2016. The new due date is more than two months earlier than the previous June 30th due date, but will align with the due date for individual income tax returns. The new law, however, allows certain taxpayers the potential for an extension to the filing deadline, up to October 15. Under the previous rule, all FBARs were due on June 30th, without the possibility of extension. Americans living abroad receive the same automatic extension as received for income tax returns to June 15 for filing the FBAR.

Annual FBAR filings are required of an American taxpayers that own or have signature authority over foreign financial accounts, if the aggregate amount of all foreign accounts is greater than $10,000. Penalties for willful or fraudulent violations of this law can come as a substantial fine or even up to five years of prison time. Although these provisions, enforced by the Financial Crimes Enforcement Network (FinCEN), generally have not changed, one new addition has been added. Specifically, the Secretary now has the power to waive the penalty for failure to file or request an extensions for first time offenders.

The FBAR changes are a result of a small provision within the highway appropriations bill, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, signed into law on July 31, 2015.

© 2015 Houghton Vandenack Williams
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Required Reporting of Offshore Assets

US individual and business taxpayers with interests in certain foreign or offshore financial assets or accounts are required to disclose those assets on their federal income tax returns or file additional forms. A failure to file the necessary forms or a failure to disclose reportable assets can lead to both criminal and substantial monetary penalties.

The IRS has established various programs for remedying certain non-compliance issues and limiting liability for taxpayers that either fail to file or make proper disclosure. The programs typically involve voluntary disclosure of the reportable assets or the filing of amended returns. These voluntary programs must normally be undertaken prior to any IRS investigation of the matter. The correct remedy and actual eligibility for the various programs depends on the circumstances surrounding the failure to disclose the reportable assets or the failure to file the necessary forms.

In 2014, the IRS announced modifications of certain programs, but expanded others to accommodate additional taxpayers. For more information, see http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs;-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance. IRS, IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance; IR-2014-73, June 18, 2014.

If you have foreign or offshore assets, it is best to contact an attorney to determine whether those assets are reportable, and if you have failed to report those assets, it is important to determine what steps should be taken to limit the risks associated with the previous failure to report foreign or offshore assets.

© 2015 Houghton Vandenack Williams

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IRS Requires Power of Attorney for Business Employees to Communicate

By Mary E. Vandenack.

Circular 230 provides details as to dealing with the Internal Revenue Service (IRS) on all matters. One of the issues addressed is who may communicate and correspond with the IRS. If a corporate employee is simply providing and receiving information, then a Form 4764 is sufficient to authorize the employee to communicate with the IRS. If a corporation wants to allow a specific employee to negotiate, advocate, or dispute issues with the IRS, a Form  2848 designating that employee must be filed.

© 2014 Parsonage Vandenack Williams LLC

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Who Must File a Report of Foreign Bank and Financial Accounts (FBAR)?

An International Law FAQ with Mary E. Vandenack.

Anyone who has a signatory on an account in a foreign country should take a look at whether they are subject to the rules concerning the foreign bank financial account reporting rules. A lot of people are caught by surprise because they have moved out of the U.S. but retain their U.S. citizenship and find out that they are subject to these laws. So if you have a signature on a bank account of any type, perhaps you are trustee for a parent’s trust in another country, you are likely to be subject to the U.S. laws.

© 2014 Parsonage Vandenack Williams LLC

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What Is a Tax Treaty?

An International Law FAQ with Mary E. Vandenack.

A tax treaty is a special agreement between countries about the way citizens from different countries are going to be treated when they live or work in different countries. For example, the United States might have a tax treaty with Russia and that might specify what happens if a U.S. company has an employee in Russia or simply a U.S. resident goes over and lives in Russia. The treaty will specify who is going to be subject to tax, how much and how do credits work between the two countries.

© 2014 Parsonage Vandenack Williams LLC

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What Does My Business Need to Know About International Law?

An International Law FAQ with Mary E. Vandenack.

 If your business is going to engage in business in international waters, then your business is going to be subject to a variety of international laws. You need to get someone who is an expert in those. Often, that does mean engaging co-counsel in the country that you are going to do business in. So you need to be very apprised of the tax laws. The tax laws will affect your business. They are also going to affect your employees. You are going to want to understand the implications of the tax laws and any tax treaties between the U.S. and the country in which you are doing business.

© 2014 Parsonage Vandenack Williams LLC

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