As many of my readers are likely aware, commencing with the 2017 tax year, single-member US LLC’s with foreign ownership will need to file Form 5472 to report transactions with their foreign owners. This is a brand new requirement and a cause of angst for many foreign owners of US LLCs who had heretofore had no US tax or information filings with which to be concerned. The Form 5472 will be due in 2018. Due to the wording of the statute’s applicability, if a single-member foreign-owned US LLC liquidates (or otherwise terminates its tax year) before December 13, 2017 filing of the Form 5472 would not be required. Thus, an action plan should be put in place now.
“Employer Identification Number” is a Must
In order to complete the Form 5472, the US LLC will need to obtain a so-called “Employer Identification Number” (EIN). In order to obtain an EIN, the entity must file a Form SS-4 “Application for Employer Identification Number”. The Form SS-4 at line 7a requires the applicant to indicate a responsible party of the entity; Line 7b requires an SSN, ITIN or EIN of the responsible party. Here is where things seem to get complicated.
For purposes of the SS-4, a responsible party is an individual who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets. See Form SS-4 and the Instructions for Form SS-4.
In the usual case of a foreign-owned single member LLC, the “responsible party” will often be a nonresident alien individual (NRA) owner of the LLC. What if the NRA owner of the LLC does not have an ITIN?
Is Having an ITIN a Must?
Due the instructions to the Form SS-4, most practitioners think an ITIN is required in the circumstance of an NRA owner of the US LLC. This is understandable since the relevant portion of the Form SS-4 instructions provides as follows:
“You must enter an SSN, ITIN, or EIN on line 7b unless the only reason you’re applying for an EIN is to make an entity classification election (see Regulations sections 301.7701-1 through 301.7701-3) and you’re a nonresident alien or other foreign entity with no effectively connected income from sources within the United States.” (italics mine).
The wording from the instructions does not seem to provide an exemption for the completion of Line 7b (i.e., provision of a SSN, ITIN or EIN) in the case when an EIN is needed solely in order to complete Form 5472.
Correspondence with the IRS (ITIN Division) indicates an ITIN is NOT required (and indeed, will not be issued) when one needs an EIN only for purposes of completing the Form 5472. The relevant portion of the correspondence received from the ITIN Program Office is copied below:
“Thank you for contacting the ITIN Program Office. We apologize for the delay in our response.
A foreign individual (responsible party) submitting Form SS-4, Application for Employer Identification Number, is not required to have an ITIN in order to receive an EIN; therefore, an ITIN will not be issued solely for this purpose.
In instances where an ITIN is not required, but an EIN is required to meet federal tax obligations, IRS will assign an EIN to the entity whether the sole proprietor, partner, principal officer, grantor, responsible party, etc. has a valid ITIN or not. Additionally, the Instructions for Form 5472, Line 1b(1), state to enter the foreign shareholder’s U.S. tax ID number, if any. This would also indicate that foreign individuals without a U.S. tax ID would not be required to have an ITIN in order for the form to be considered valid.
We hope this information is helpful.
The information certainly was helpful and if it works out as stated, will save many headaches for NRA owners of single-member US LLCs. With regard to the Instructions to Form SS-4, it is possible that there is a typographical error in the instructions to the Form, as quoted previously. Perhaps the instructions did not mean to use the word “and” but rather, should have used the word “or” preceding the words “you’re a nonresident alien……” In other words, perhaps the instructions were meant to read as follows: ” You must enter an SSN, ITIN, or EIN on line 7b unless the only reason you’re applying for an EIN is to make an entity classification election (see Regulations sections 301.7701-1 through 301.7701-3) or you’re a nonresident alien or other foreign entity with no effectively connected income from sources within the United States.” (italics mine).
Maybe the IRS will see this post and take the necessary action to clear up what appears to be widespread misunderstanding of the ITIN requirement for a “responsible party” in cases when an EIN is needed solely for completing Form 5472!
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