Sole foreign proprietor of an LLC in the US? The Obama administration has left a surprise for you!

Starting fiscal year 2017, a foreign (non-American entity) sole owner of an LLC will have to provide the

US tax authorities with form 5472,

an informative form reporting ownership of an LLC and certain transactions performed by the controlling party.

At the beginning of the year, the US Department of Treasury and the IRS have issued an expansion of

IRC Section 6038A to include disregarded entities not classified as a US corporation.

The implications are that these entities will now be under the obligation of filing,

bookkeeping, and any additional demands that apply to 25% foreign-owned domestic corporations.

What made the tax authorities suddenly require this?

Since 2010 with the introduction of FACTA, the US has set out after black markets and tax evaders, creating global bureaucratic chaos.

Ever since, the majority of foreign countries had signed treaties with the US, enforced by banks, among other entities.

The US requires foreign countries to provide information on its citizen, and can enforce sanctions on refusing entities or countries, as was the case with several Swiss banks.

At the same time, however, the US has become a tax shelter of sorts for foreign citizens, who disguise their activities via LLC ownership.

The increased criticism from countries worldwide has driven the Obama administration to order an amendment of this state via an adaptation of the regulations.

This action would increase collaborations and exchange of knowledge between the US and other countries.

It is another in a series of steps that are already being put into gear,

such as Title company obligation for FinCEN reporting of lucrative real estate deals in Miami and New York.

What does this mean for us, LLC owners?

Starting in fiscal year 2017, every LLC is required to issue and EIN and appoint a responsible party.

In addition, each sole proprietor will be under an obligation of documentation and book keeping.

Finally, LLCs will be required to file form 5472, separately or together with 1040NR, even in cases where no filing obligation is in order.

This form discloses LLC proprietorship and details certain transactions between the LLC and the proprietors.

Failure to report can incur severe  fines.