This FAQ is written for non-U.S. founders (and their advisors) who formed a Wyoming/Delaware/Colorado LLC to use Stripe/PayPal, Shopify, Amazon, U.S. banking, or U.S. credibility—but who live and work outside the United States.
It focuses on the questions that repeatedly come up in real consultations:
- “I’m not a U.S. resident—do I still owe U.S. federal income tax?”
- “I got a 1099-K from Stripe—does that mean I must pay U.S. tax?”
- “What is the $25,000 Form 5472 penalty and how do I avoid it?”
- “Single-member vs multi-member LLC—what do I file?”
- “What changes if the owner becomes a foreign company instead of a person?”
- “Does dissolving my LLC mean I’m done?”
Educational content only. U.S. tax results are fact-driven. If you want advice on your exact facts, get a formal engagement.
1) First, the big idea: the U.S. taxes activity, not your Stripe account
A common misconception is: “If I have a U.S. LLC or U.S. Stripe, I must owe U.S. tax.”
That’s not how U.S. federal income tax works.
In general:
- A foreign founder can have a U.S. LLC + U.S. bank + Stripe and still owe $0 U.S. federal income tax, if they are not engaged in a U.S. trade or business and do not have effectively connected income (ECI).
- But even when income tax is $0, there may still be mandatory U.S. filings (especially Form 5472 for foreign-owned disregarded LLCs).
2) What type of LLC do you have? This determines the “default” IRS paperwork
A) Foreign-owned single-member LLC (disregarded entity)
If a non-U.S. person (or foreign company) owns 100% of a U.S. LLC and no election was made to treat it as a corporation, the IRS generally treats it as a disregarded entity for income tax.
But: for limited purposes of information reporting, the IRS treats a foreign-owned disregarded LLC like a corporation for Form 5472 purposes, and it must report “reportable transactions” with its foreign owner/related parties.
Typical filing package (most common):
- Form 5472 + pro forma Form 1120 (as a cover sheet)
- Due date generally tracks the return due date (often April 15 for calendar-year filers), and extensions are typically requested using Form 7004.
B) Foreign-owned multi-member LLC (partnership)
A multi-member LLC is typically treated as a partnership (unless it elects corporate treatment).
Typical filing package:
- Form 1065 (partnership return) + partner schedules (K-1 and, when applicable, international schedules such as K-2/K-3)
- Even when the partnership owes no entity-level U.S. income tax, the 1065 is usually still an information return that reports activity and allocates results to partners.
3) “We’re not U.S. residents. Do we owe U.S. federal income tax?”
Usually “no” if all of this is true
Many foreign founders owe no U.S. federal income tax when:
- The owners live outside the U.S.
- The work (services/management/decision-making) is performed outside the U.S.
- There is no U.S. office, employees, or dependent agent conducting core business in the U.S.
- Any U.S. presence is limited to payment processing, banking, platforms, and vendors (not people creating/closing deals inside the U.S.)
The biggest “yes” trigger: a person in the U.S. doing real business work
If you have someone in the U.S. who is effectively:
- negotiating contracts,
- signing deals,
- running operations,
- acting as your U.S. “general operational manager,”
- or otherwise creating a U.S. base of business activity,
that can increase the risk that some income becomes effectively connected to a U.S. trade or business.
This is why two businesses that both “sell to U.S. customers” can have very different U.S. income tax outcomes.
4) “I got a 1099-K from Stripe. Do I now owe U.S. tax?”
A 1099-K is not a tax bill
A Form 1099-K is an information report that payment platforms use to report payment flows. It does not decide:
- whether the income is U.S.-source,
- whether you were engaged in a U.S. trade or business,
- whether you owe U.S. tax.
The IRS has also been explicit that 1099-K forms can reflect gross payment volume and may include items that are not taxable income (refunds, fees, etc.), so taxpayers should reconcile it to their books.
Reporting thresholds have been changing
The IRS has provided transition rules for 1099-K thresholds (phased changes rather than an overnight drop).
Practical takeaway:
If your facts support “no U.S. trade or business / no ECI”, a 1099-K alone does not suddenly create U.S. income tax. But it does increase the importance of:
- clean bookkeeping,
- correct W-8/W-9 documentation,
- and (in some cases) a protective filing strategy if there’s uncertainty.
5) W-8 vs W-9: what should foreign owners give to payers/platforms?
If you are a foreign person (or foreign entity)
You generally provide a W-8 series form to certify foreign status (e.g., W-8BEN for individuals, W-8BEN-E for entities).
If you are a U.S. person
A W-9 is used to certify U.S. person status and a U.S. TIN.
Common mistake: foreign owners sending W-9 “because the LLC is in the U.S.”
For many structures, that’s the wrong form and can create compliance noise (or worse).
6) Form 5472: what it is, what it reports, and the $25,000 penalty
What Form 5472 is (in plain English)
For foreign-owned U.S. disregarded LLCs, Form 5472 is how you report “reportable transactions” between:
- the LLC, and
- its foreign owner or other related parties.
Think: money in, money out, and related-party dealings.
Typical reportable transactions include:
- initial capital contributions,
- owner funding the LLC bank account,
- distributions back to the owner,
- owner paying LLC expenses personally,
- reimbursements,
- intercompany charges with a foreign parent, etc.
Pro forma Form 1120: why it’s attached
Form 5472 doesn’t work well as a standalone “signed cover return,” so the IRS requires it to be filed with a pro forma Form 1120 (as the reporting shell/cover).
The penalty is real (even when income tax is $0)
Failure to file (or incomplete filing) can trigger a $25,000 penalty.
This is why “we had no revenue” does not automatically mean “we don’t need to file.”
7) “My LLC had no real activity” (or I dissolved it). Do I still file?
Often, yes, because “no business revenue” is not the same as “no reportable transactions.”
Examples that still commonly create a Form 5472 filing requirement:
- You funded the LLC with $100 to open Wise/Stripe/banking
- You paid registered agent / formation / dissolution fees
- You moved money in/out of the LLC account
- You reimbursed yourself
If the LLC is dissolved, you typically:
- 1. dissolve with the state,
- 2. file any final required IRS information filings (often still 5472/pro forma 1120),
- 3. optionally send a letter to close the EIN account (optional process; not always necessary).
8) Ownership change: “What if the owner becomes a foreign company instead of a person?”
If a foreign-owned U.S. LLC remains foreign-owned after restructuring (e.g., the U.S. LLC becomes a subsidiary of e.g. Lithuanian/UAE/Chinese company), the Form 5472 concept usually stays the same:
- the LLC is still “foreign-owned,”
- it still reports related-party transactions,
- but the related party is now a foreign entity (often meaning W-8BEN-E is more relevant than W-8BEN).
If, separately, the foreign parent has U.S. trade/business exposure, the relevant income tax return might be different, but that’s a fact-heavy analysis.
9) Sales tax: not IRS, but still a major compliance issue for e-commerce
Sales tax is state-level, not federal income tax.
General rule of thumb (varies by state): you may have a requirement to register and collect if you cross “economic nexus” thresholds.
Practical best practice:
Use a sales tax automation tool and/or a dedicated sales tax advisor once you scale—especially if you sell physical goods into many states.
10) Working with formation platforms and “AI bookkeeping dashboards”: what to demand
If a third-party platform claims they “filed your taxes” or “did your books,” you should be able to obtain:
- the exact IRS forms filed (PDF copies),
- proof of filing (acceptance, fax confirmation, certified mail receipt, etc.),
- and a clean year-end package (P&L, balance sheet, transaction mapping).
Never assume something was filed just because a dashboard says “Federal Tax: Active.”
If you want a CPA/tax attorney review of your specific facts (LLC type, owners, U.S. presence risk, 1099-K handling, 5472/1065/1120-F filing strategy, and “protective return” options), book a paid appointment here:
https://oandgaccounting.com/appointment-booking-form/
