Nomad Capitalist R&D: How to Report a US LLC for Foreigners

Foreign owners of a U.S. limited‑liability company (LLC) must meet several filing obligations to stay in compliance with IRS and Treasury regulations. Below is a concise guide to the core requirements, deadlines, and common pitfalls.

Obtain an Employer Identification Number (EIN)

Before any tax filings, the LLC must have an EIN. The number can be requested at any time through the IRS website or by mail.

Form 5472 (filed together with Form 1120)

• Who must file: Any foreign‑owned U.S. LLC that engages in “reportable transactions” with related parties. The definition is broad; filing is recommended even when uncertainty exists.
• Penalty for non‑filing or incorrect filing: Up to $25,000 per missed or erroneous form.
• What to include:
  1. Value of the LLC as of December 31 of the tax year.
  2. Amount transferred from the LLC to a non‑U.S. owner (e.g., distributions).
  3. Amount transferred from a non‑U.S. owner to the LLC (e.g., capital contributions).
  4. Identification numbers for any owner holding ≥ 25 % of the LLC.
• Submission method: Must be mailed or faxed to the IRS; electronic filing is not permitted.
• Financial statements: Detailed profit‑and‑loss statements are not required on the form, but the LLC should retain records of all income, expenses, and payments (including those processed through PayPal, Stripe, or similar platforms) for potential audit purposes.

FBAR – Report of Foreign Bank and Financial Accounts (FinCEN Form 114)

• Who must file: U.S. persons (citizens, residents, partnerships, LLCs, estates, or trusts) who have at least one foreign financial account with an aggregate balance exceeding $10,000 at any point during the calendar year.
• Deadline: April 15 (automatic extension to October 15 if the April deadline is missed).
• Key point: The filing requirement is triggered by the account balance, not by the amount of income earned.

Form 1040‑NR (U.S. Non‑Resident Alien Income Tax Return)

• Who must file: Non‑resident aliens who are engaged in a U.S. trade or business, which includes owning a U.S. LLC that generates U.S.-source income.
• Deadline: April 15 of the year following the tax year.
• Purpose: Reports U.S.-source income, calculates any tax owed, and claims allowable deductions and treaty benefits.

Practical Compliance Tips

• Maintain thorough documentation: Keep bank statements, payment‑processor reports, and records of all capital contributions and distributions.
• Track ownership percentages: Identify any owners with a 25 % or greater stake, as their information must be reported on Form 5472.
• Seek professional advice: The breadth of “reportable transactions” and the interaction between the three filings can be complex; a qualified tax professional can help avoid costly penalties.
• Monitor legislative changes: The 2017 Tax Cuts and Jobs Act expanded reporting obligations and increased penalties, so staying current on IRS guidance is essential.

By securing an EIN, filing Form 5472 with Form 1120, meeting FBAR thresholds, and submitting Form 1040‑NR when applicable, foreign owners can fulfill their U.S. tax compliance responsibilities and mitigate the risk of substantial penalties.