Non-resident alien, foreign corp, US SMLLC

Technical topics regarding tax preparation.
#1
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Client is a non-resident alien residing in a country that has a tax treaty with the US. She has ownership (either whole or partial -- I haven't gotten a response yet) in a fairly successful company there ("ABC Ltd") that sells and rents widgets worldwide.

During 2018, they decided to establish a sub in the US ("ABC America LLC") to facilitate sales and rentals to US based customers.

I get to review the operating agreement and formation docs 5 months after first talking to her, and it turns out she personally is the sole member of the LLC and not the foreign corp. No activity at all for 2018 for the US LLC and client wasn't in the US for a single day.

Easy peazy, no 5472 and 1120 proforma required, no 1040NR or 1040 for her (assuming she has no other US activity). No filing obligations for 2018.

What has me concerned is that she's holding the US LLC (which is currently disregarded) directly instead of through the foreign corp. I feel like the ownership should be through the foreign corp so that:

(1) initial losses may be able to be used to offset foreign corp income per the tax treaty if there's no 'permanent establishment' in the US. In that case a no-tax-due 1120-F would be filed with an 8833 attached.

(2) if there is permanent establishment, and the US LLC eventually swings to profit, the net income would be taxed at 21% instead of bracketed individual rates.

(3) if foreign country treats US LLCs as corporations, which I've spent time researching but still isn't clear, tax credits can be brought into parity by electing C Corp status for the US LLC.

(4) complications on contributions/distributions could be avoided.

Am I missing something here?
 

#2
deniz  
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5) Branch Profits Tax - When US LLC becomes a branch of Foreign Corporation, it will be subject to the Branch Profits Tax. I would check the LLC and turn into a Sub. NRA Individual owners are not subject to Branch Profits tax.

6) Transfer Pricing - When I/C transfers are sufficient. You may want to look into a Transfer Pricing Agreement.
 

#3
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deniz wrote:5) Branch Profits Tax - When US LLC becomes a branch of Foreign Corporation, it will be subject to the Branch Profits Tax. I would check the LLC and turn into a Sub. NRA Individual owners are not subject to Branch Profits tax.

6) Transfer Pricing - When I/C transfers are sufficient. You may want to look into a Transfer Pricing Agreement.


Thanks deniz. I had transfer pricing on my list (it's mentioned in my engagement letters too) as a consideration, but you're right it needs to be listed here as well.

For #5 are you suggesting checking the box and making a C election? Those were my thoughts, however I was under the impression that doing so wouldn't become priority until the US LLC became profitable. First year or two will most likely be losses.
 

#4
deniz  
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yes, that is right on checking.
 

#5
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Thanks deniz.
 

#6
juro  
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I hope all is well with you, I had a few questions regarding form 5472 filing for single member LLCs that are non residents. Are you familiar with these forms as I have recently been getting clients who it seems are required to file this but I was a bit confused when they say also file form 1120 but they are not corporations.
 

#7
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You'll want to review the 5472 instructions.

Typically foreign owned SMLLCs that are disregarded will need to file a 5472 with an 1120 proforma if they have any transactions that trigger the 5472 obligation. Seeding the SMLLC with capital is one such transaction.

Then you'd need to examine if a 1040NR or 1120-F is required depending on the ownership.
 

#8
juro  
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ManVsTax wrote:need to file a 5472 with an 1120 proforma



what is a 1120 proforma?

can i file only page one of form 1120, with form 5472?
 

#9
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From the 5472 instructions:

Foreign-owned U.S. DEs. While a
foreign-owned U.S. DE has no income tax
return filing requirement, as a result of final
regulations under section 6038A, it will
now be required to file a pro forma Form
1120 with Form 5472 attached by the due
date (including extensions) of the return.
The only information required to be
completed on Form 1120 is the name and
address of the foreign-owned U.S. DE and
items B and E on the first page. The
foreign-owned U.S. DE has the same tax
year used by its owner for U.S. tax filing
requirements or, if none, the calendar
year.

“Foreign-owned U.S. DE” should be
written across the top of Form 1120. File
these forms by:

• Fax (300 DPI or higher) to
855-887-7737, or

• Mail to:
Internal Revenue Service
1973 Rulon White Blvd M/S 6112
Attn: PIN Unit
Ogden, Utah 84403
 


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