In December 2016, the Internal Revenue Service and the US Treasury Department issued final regulations subjecting non-US owned disregarded entities to US filing and other requirements. These obligations apply for the 2017 taxable year. A client alert was prepared on this topic in January, 2017.
Disregarded entities are generally not recognized for US tax purposes and are typically not subject to US federal tax filing and reporting requirements. Under the new regulations, however, foreign-owned US disregarded entities are, for certain reporting purposes, treated as separate from their owners, subjecting them to certain reporting requirements currently applicable to 25% foreign-owned US corporations.
New Filing & Reporting Obligations
The Final Regulations require all foreign-owned domestic disregarded entities to:
The final regulations provide for a penalty of $10,000 to be assessed to any reporting corporation that has failed to file a Form 5472, or has filed a substantially incomplete Form 5472. A penalty of $10,000 is also applied for a failure to maintain the necessary records. Additionally, every foreign or domestic related party with which the reporting corporation had a reportable transaction during the taxable year, is considered separate, therefore is subject to a penalty of $10,000 each for failure to file or maintain records.
Again, these regulations are applicable to 2017. If you have questions about the final regulation requirements and how they will be applied, please contact:
Michael Eagan 212.331.8831 | firstname.lastname@example.org
Marc Ausfresser 212.331.7639 | email@example.com
Or contact your Berdon advisor
Berdon LLP New York Accountants