Amid the flurry of tax reform activity that’s consuming taxpayers and their advisors, it may be easy to miss some new reporting obligations beginning in 2018 that were not part of the tax reform legislation. Alvarez and Marsal, Taxand USA, focuses on a particularly unusual reporting obligation that applies to business entities that were not required to file tax returns in the past.
Beginning in 2018, any domestic business entity that is wholly owned by a foreign person and that is otherwise classified under the check-the-box regulations as a disregarded entity separate from its owner (a “foreign-owned DRE”) must complete Form 5472, Information Return of a 25 Percent Foreign-Owned Corporation or a Foreign Corporation, and report transactions with its owner and related parties.
With the 15 April 2018 filing deadline on the horizon and an applicable $10,000 penalty for failure to file the required form, it is important to identify the entities in your structure potentially subject to the new rules as well as the transactions that will need to be disclosed.
Discover more: New reporting requirements for 2018 for foreign-owned US disregarded entities
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Identify the entities in the structure that are disregarded and wholly-owned by a foreign person. Second, identify the foreign owner and related parties under the attribution rules applicable to the Form 5472. Finally, review the transactions between the foreign-owned DRE and the owner or related parties to determine the transactions required to be disclosed. If the foreign-owned DRE does not already have an EIN, then file Form SS-4, Application for Employer Identification Number with responsible party information, including the party’s SSN, ITIN, or EIN, to obtain the number. Note that these regulations do not impact the obligation to file Foreign Bank Account Reports (FBAR) by certain domestic DREs on certain financial accounts located outside the United States.
