Form 5472 for a non-resident's LLC: a $25,000 penalty

A non-resident's single-member LLC pays no income tax itself, and many owners assume it has nothing to report. That mistake costs $25,000.

How the IRS sees an LLC

For income tax, the IRS doesn't treat a single-member LLC as a separate taxpayer: its activity is reflected in the owner's return. An LLC with several members is a partnership by default. Any LLC can elect to be taxed as a corporation on Form 8832; more in the comparison of C-Corp and LLC.

For Form 5472, however, a foreign owner's single-member LLC is treated as a corporation.

Which transactions go on the form

The related party here is first of all the owner. The report covers:

• money the owner put into the LLC or took out of it;
• the costs of forming, acquiring and dissolving the company;
• sales, rent, loans and payment for services between the company and the owner.

How and when to file

The regular addresses in the 1120 instructions don't apply to these LLCs.

The penalty

The IRS charges $25,000 for each Form 5472 not filed on time. The same penalty applies if the company doesn't keep records of the transactions. A substantially incomplete form counts as not filed.

A non-resident's other taxes

A non-resident's US-source income that isn't connected with a US business, such as dividends and interest, is taxed at 30% unless a tax treaty lowers the rate. Whether the owner needs a personal return depends on where and how the LLC earns. Reporting needs a company number: see the article EIN or ITIN. Forms 5472 and 1120 can be prepared by an accountant for a US company.