IRS Issues Broad Disclosure Rules For Foreign-Owned Disregarded U.S. Entities

In the flood of guidance being issued in the waning days of the Obama Administration, the IRS and Treasury Department have finalized regulations that require foreign owners of single-member U.S. LLCs to file an information return on IRS Form 5472, "Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business." These regulations may create major headaches for foreign investors using wholly owned U.S. LLCs to hold investments or conduct business in the United States or even abroad. At the very least, the new regulations may become a "trap for the unwary" for foreign persons who hold non-U.S. investments in U.S. LLCs that are disregarded entities (DREs). Such foreign persons may not have U.S. tax compliance controls in place and may not be consulting with U.S. tax advisers regularly. If such persons are not generally aware that U.S. tax obligations may apply, they run the risk of failing to file Form 5472 through