QUESTION: Do I need to file Form 5472 for my inactive Delaware single member LLC with no US business activity, as a non-US citizen/resident conducting business solely in Europe? What about the corporate transparency act reporting for inactive and dormant entities?
EXPERT’S RESPONSE: The key factor is not the active operation or income generation of the LLC but the occurrence of any related party or reportable transactions. Here are scenarios that necessitate filing:
- Initial Setup Contributions: Contributions made by you for setting up the LLC, including formation fees, are considered reportable transactions.
- Owner’s Personal Transactions with the LLC: This includes:
- Funds transferred from the owner to the LLC or vice versa.
- Expenses paid by the LLC on behalf of the owner or by the owner on behalf of the LLC.
- Personal use of LLC funds by the owner or investment of LLC funds into personal assets.
- Owner’s personal account used for LLC expenses (e.g., domain fees, legal fees, etc.).
- Capital contributions by the owner to the LLC.
- Transactions Involving Related Entities: For example, transferring funds from a company you own in another country to the U.S. LLC.
Non-reportable transactions are typically those involving third parties in the regular course of business, such as payments to unrelated service providers
Corporate Transparency Act (CTA) Reporting for Inactive and Dormant Entities
- The CTA introduces new reporting requirements for beneficial ownership information. However, there are specific exemptions for dormant companies. A dormant company under the CTA is one that:
1. Existed before January 1, 2020.
2. Is not engaged in active business.
3. Is not owned, directly or indirectly, by a foreign person.
4. Has not experienced a significant change in ownership or transactions exceeding $1,000 in the past 12 months.
5. Does not hold assets, including ownership interests in other entities.
Compliance and Reporting:
- New Entities Post-CTA Enactment: Entities created after the enactment of the CTA do not qualify for the dormant company exemption.
- Ongoing Compliance: Even for inactive or dormant LLCs, compliance with the CTA reporting requirements is essential. It’s crucial to monitor any changes in your LLC’s status that might affect its classification under the CTA.
The US tax system, with its complex compliance and reporting requirements, can be challenging, especially for foreign-owned LLCs. While this overview provides a general understanding, each situation has unique aspects that might require detailed analysis. For personalized guidance, consulting with a tax advisor knowledgeable in US tax law and international business structures is recommended. At O&G Accounting, our expertise in these matters can provide valuable support in navigating these complexities. Contact us for a comprehensive consultation to address your specific needs.
For further clarification or specific inquiries about your LLC’s situation, please feel free to reach out.