Most foreign investors who buy US property through a single-member LLC are told, correctly, that the LLC is disregarded for US income tax. Many conclude that it has nothing to file. It does: for tax years beginning on or after January 1, 2017, a US LLC wholly owned by one foreign person must file Form 5472 each year, and the penalty for missing it is large enough to matter on any property.
This page summarizes the IRS instructions for Form 5472. It is general information, not tax advice; a US tax adviser should prepare the filing.
Who must file
- A foreign-owned US disregarded entity: a US LLC wholly owned by one foreign person (an individual or a foreign company). For this purpose the IRS treats it as a corporation
- A US corporation that is at least 25% foreign-owned, including an LLC that has elected corporate taxation, attaches Form 5472 to its regular Form 1120
- An LLC with two or more members taxed as a partnership does not file Form 5472 on this basis; it has its own partnership filings
What has to be reported
Form 5472 reports reportable transactions between the LLC and related parties, and for a foreign-owned disregarded entity the IRS gives the term a wide meaning. It includes amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity, including contributions to the LLC and distributions from it.
For a property LLC, that typically means the equity you send to buy the property, money you send to fund renovations or carry the loan, loans between you and the LLC, rent or sale proceeds paid out to you, and fees paid to companies you own. The LLC must keep records sufficient to support what it reports.
How and when to file
- Attach Form 5472 to a pro forma Form 1120 on which only the name and address of the LLC and items B and E on page 1 are completed
- File a separate Form 5472 for each related party with which the LLC had a reportable transaction
- Due date: the due date of Form 1120, April 15 for a calendar-year company. A foreign-owned disregarded entity uses its owner's US tax year or, if none, the calendar year
- Extension: file Form 7004 by the regular due date, using the Form 1120 code
- Delivery: no electronic filing. Mail to the IRS address in the instructions (Ogden, Utah) or fax to 855-887-7737
The penalty
The IRS assesses a penalty of $25,000 on a reporting corporation that fails to file Form 5472 when due, or fails to keep the required records. If the failure continues for more than 90 days after the IRS mails a notice, an additional $25,000 applies for each related party and each 30-day period, or part of one, that it continues. The penalty does not depend on any tax being owed, which is why a property LLC with no profit is not safe from it.
The EIN comes first
The LLC needs an EIN to file Form 5472. A foreign owner obtains it with Form SS-4 by phone, fax or mail, without a Social Security number; the SS-4 instructions tell a foreign-owned single-member LLC to describe itself on line 9a as 'Foreign-owned U.S. disregarded entity-Form 5472'.
Form 5472 and your financing
Lenders do not underwrite your Form 5472, but they do look at the LLC: its good standing, its EIN, its bank account and who owns it. A clean, compliant entity is part of a clean file. Passy Capital lends to foreign-owned US LLCs on the same terms as to US investors, with no US credit history required: bridge up to 80% LTV, fix and flip up to 90% LTC, construction up to 85% LTC and DSCR up to 80% LTV, from $1M to $5M.
The loan proceeds themselves come from an unrelated lender, so the loan is not a related-party transaction. Equity you put in and distributions you take out are.