Foreign-Owned Single-Member LLC Reporting

Section 6038A of the Internal Revenue Code requires any domestic corporation that is 25% or more foreign-owned to file Form 5472, reporting certain transactions with related parties. Effective for tax years beginning after December 31, 2016, Treasury Regulations extended this obligation to foreign-owned disregarded entities, including single-member LLCs wholly owned by a foreign person. The filing must be submitted with a pro forma Form 1120 even if the entity has no taxable income. Failure to file carries a statutory base penalty of $25,000 per return per year under 26 U.S.C. § 6038A(d), with additional $25,000 penalties for each 30-day period of continued non-compliance after IRS notification.

Under the check-the-box regulations at 26 C.F.R. § 301.7701-3, a domestic single-member LLC with a single foreign owner is by default classified as a disregarded entity for federal income tax purposes. The entity's activities are treated as those of its owner; the LLC itself has no separate federal income tax return filing obligation.

However, for purposes of 26 U.S.C. § 6038A information reporting, the Treasury Regulations reclassify this otherwise disregarded entity as a corporation. This is a limited-purpose reclassification: it does not alter the entity's income tax treatment, its liability shield under state law, or its classification for any other federal tax purpose. The sole effect is to bring the entity within the reporting framework of § 6038A and its implementing regulations.

This regulatory reclassification creates a reporting obligation that exists independently of the entity's income tax posture.

The Form 5472 reporting obligation is an information return requirement, not an income tax return. It is triggered by entity structure and ownership, not by the existence of taxable income. A foreign-owned single-member LLC must file Form 5472 attached to a pro forma Form 1120 even if:

• The LLC had no revenue during the tax year.
• The LLC engaged in no US trade or business.
• The LLC had no effectively connected income.

The reporting obligation arises from the occurrence of any "reportable transaction" between the LLC and its foreign owner (or other related parties). Capital contributions, loans, payment of organizational expenses, and use of property are all potentially reportable transactions, even in a year with zero income.

This is the most common point of non-compliance: foreign owners who form a US LLC but do not file because they incorrectly believe no filing is required absent income.

A foreign-owned single-member LLC that is classified as a disregarded entity must file Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business) for each taxable year in which a reportable transaction occurs with a related party. The form is not filed on its own; it must be attached to a pro forma Form 1120, which serves as the transmittal return. This filing obligation exists regardless of whether the LLC earned income, engaged in a trade or business, or has any federal income tax liability. The obligation arises from entity structure and ownership, not from the presence of taxable activity.

The filing mechanism involves three components:

The federal tax treatment of any business entity begins with the classification framework established by 26 U.S.C. § 7701(a). This provision defines the foundational categories — corporation, partnership, and trust — and distinguishes between domestic and foreign status based on where the entity is created or organized. An entity formed under the laws of a US state is domestic; an entity formed under foreign law is foreign. These definitions are statutory and do not depend on the entity's operating location, the nationality of its owners, or the source of its income.

The Treasury Regulations at 26 C.F.R. §§ 301.7701-1 through 301.7701-3 — commonly known as the "check-the-box" regulations — implement the statutory framework by providing default classification rules and an elective regime. Under these regulations, a domestic eligible entity with a single owner is classified by default as a disregarded entity: an entity that is not recognized as separate from its owner for federal income tax purposes. The entity's income, deductions, and credits are reported on the owner's return. An eligible entity may elect a different classification by filing Form 8832 (Entity Classification Election), but absent such election, the default governs.

For a single-member LLC formed in a US state and wholly owned by a foreign person, the default classification under the check-the-box regulations is disregarded entity. This means the LLC has no obligation to file a separate federal income tax return (e.g., Form 1120 or Form 1065) solely by virtue of its classification. However, the disregarded-entity classification does not eliminate all federal filing obligations. Separate statutory and regulatory regimes — including information reporting requirements — may attach to the entity based on its ownership structure rather than its income tax classification. The reporting obligation under 26 U.S.C. § 6038A, addressed in the next section, is the principal example.

The statutory foundation for the Form 5472 reporting regime is 26 U.S.C. § 6038A. Enacted as part of the information reporting provisions of the Internal Revenue Code, § 6038A imposes an annual information return requirement on any domestic corporation that is 25 percent or more foreign-owned. The statute's operative term is "reporting corporation," defined as a domestic corporation for which a foreign person owns, directly or indirectly, at least 25 percent of the total voting power or total value of all classes of stock.

Section 6038A requires the reporting corporation to furnish information regarding transactions between the corporation and any "related party" as defined in § 6038A(c). The scope of reportable transactions is broad: it encompasses any transaction of the type listed in the regulations that occurs between the reporting corporation and a related foreign party during the taxable year. The statute does not condition the filing obligation on the existence of income, gain, loss, or any tax liability. The obligation is informational — it exists to give the IRS visibility into cross-border related-party dealings.

Critically, § 6038A grants the Secretary of the Treasury authority to prescribe regulations necessary to carry out the statute's purpose. It is under this delegation that the Treasury Department, through T.D. 9796 (2016), extended the § 6038A reporting obligation to foreign-owned disregarded entities — including single-member LLCs. The statutory authority itself does not mention disregarded entities; the extension was accomplished through the regulatory power delegated by the statute. The interaction between § 6038A and the entity-classification framework of § 7701 is therefore mediated by Treasury regulations, which are addressed in the Regulatory Implementation section of this entry.

The implementing regulations for 26 U.S.C. § 6038A are found at 26 C.F.R. § 1.6038A-1 through § 1.6038A-7. These regulations define the operative terms of the statute — including "reporting corporation," "related party," and "reportable transaction" — and prescribe the procedural requirements for compliance. The regulations were issued through notice-and-comment rulemaking, which means they carry the force and effect of law and are entitled to judicial deference under applicable administrative law standards.

The most significant regulatory development for foreign-owned single-member LLCs is Treasury Decision 9796, published in the Federal Register on December 13, 2016 (81 Fed. Reg. 89,852). T.D. 9796 amended 26 C.F.R. § 1.6038A-1 to expand the definition of "reporting corporation" to include a domestic disregarded entity that is wholly owned by a foreign person. For this purpose only, the regulation treats the disregarded entity as a corporation — a limited reclassification that does not affect the entity's income tax status, its state-law liability protection, or any other federal tax attribute.

This distinction between statute and regulation is material. The statute, § 6038A, applies by its terms to "domestic corporations." A disregarded entity is not a corporation under the entity-classification rules of 26 C.F.R. § 301.7701-3. The extension of § 6038A to disregarded entities was therefore accomplished not by Congress amending the statute, but by Treasury exercising its delegated regulatory authority to redefine the regulatory scope. The validity of this extension rests on the rulemaking authority granted by § 6038A(a) and on the procedural regularity of the notice-and-comment process through which T.D. 9796 was promulgated. Regulations issued through this process are presumed valid absent a successful challenge.

The effective date of the regulatory expansion is taxable years beginning after December 31, 2016. Foreign-owned single-member LLCs in existence before that date became subject to the reporting obligation starting with their first taxable year beginning on or after January 1, 2017.

The extension of § 6038A to foreign-owned disregarded entities is a regulatory act, not a statutory one. This distinction raises the question of how courts evaluate the validity and interpretive weight of Treasury regulations in this area. Two doctrinal frameworks are relevant.

Chevron deference. Under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), courts apply a two-step analysis to agency regulations interpreting ambiguous statutes. First, the court asks whether Congress has directly spoken to the precise question at issue. If the statute is silent or ambiguous, the court proceeds to step two: whether the agency's interpretation is a permissible construction. Treasury regulations issued through notice-and-comment rulemaking — including T.D. 9796 — have historically received Chevron deference when the authorizing statute delegates interpretive authority to the agency. Under this framework, the regulatory reclassification of disregarded entities as corporations for § 6038A purposes would be sustained so long as it represents a reasonable reading of the statutory delegation.

Skidmore weight. Where an agency interpretation is set forth in less formal guidance — such as revenue rulings, notices, or form instructions — courts apply the standard from Skidmore v. Swift & Co., 323 U.S. 134 (1944). Under Skidmore, the weight given to an agency's interpretation depends on the thoroughness of its reasoning, its consistency with earlier and later pronouncements, and its persuasive power. IRS form instructions and publications concerning Form 5472 fall within this tier: they inform compliance but do not carry the force of law.

For practitioners, the practical significance is that the core reporting obligation for foreign-owned disregarded entities rests on a regulation that was promulgated through formal procedures and is presumed valid. Challenges to this regulatory framework would need to demonstrate that Treasury exceeded its delegated authority or that the regulation is arbitrary — a burden that has not been met in reported decisions to date.

The following timeline illustrates the standard compliance sequence for a foreign-owned single-member LLC formed in a US state and classified as a disregarded entity.