The IRS has updated its web site for limited liability companies (LLC). Different tax laws apply to a foreign LLC and a domestic LLC.
A foreign LLC is taxed as a foreign corporation. You can elect to have the foreign LLC to be disregarded or to be a partnership (if it has more than one member). There is more on this at the end of this blog.
A domestic LLC is disregarded or is taxed as a partnership (if it has more than one member). The domestic LLC can elect to be taxed as a domestic corporation.
The tax classification of the foreign LLC is the opposite from the domestic LLC.
A foreign LLC is usually taxed as a corporation and is not a disregarded entity. A foreign LLC is a disregarded entity if, under the laws of the country, a owner are liable for the LLC’s debts. Each nation’s laws are different.
To obtain certainty with the IRS, you must file form 8832. Use IRS form 8832 (below) to elect disregarded or partnership status or corporate status. You want certainty in your tax planning.
The IRS update is below. If you need to up the quality of your tax planning, then contact me, Brian Dooley, CPA, MBT, at [email protected]
For IRS International Audit Guide on foreign entity classification, please see this link.
Learn international tax planning with my easy to read book at Amazon (in audio, Kindle and paper) on this link.
The IRS Special rules for Limited Liability Company (LLC) (Including a Nevis LLC, a Belize LLC and a Cayman LLC). is below
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.Owners of an LLC are called members.
Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information.
There are special rules for foreign LLCs Classifications. The federal government does not recognize an LLC as a classification for federal tax purposes. This means that the LLC is classified as something else.
An LLC is classified as an corporation, partnership or sole proprietorship tax return. An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner, a “disregarded entity.” Form 8832 is also filed to change the LLC’s classification.
Effective Date of Election. The election to be taxed as the new entity will be in effect on the date the LLC enters on line 8 of Form 8832. However, if the LLC does not enter a date, the election will be in effect as of the form’s filing date. The election cannot take place more than 75 days prior to the date that the LLC files Form 8832 and the LLC cannot make the election effective for a date that is more than 12 months after it files Form 8832.
If the election is the “initial classification election,” and not a request to change the entity classification, there is relief available for a late election (more than 75 days before the filing of the Form 8832).
Author note: International tax planning with a foreign limited liability company and most foreign corporations start with Form 8832. This is important. Without filing this form and election to be treated as a pass through entity, your foreign LLC is taxed as a foreign corporation. This will cause the controlled foreign corporation rules to apply.