The foreign-owned US LLC that files a return and owes no tax

An information return about transactions between a US reporting corporation and its related parties, and the annual obligation of a foreign-owned US LLC. The IRS instructions require it from a reporting corporation that had a reportable transaction with a related party during the year.

Because of how the rules define a foreign-owned US LLC. The instructions describe a foreign-owned US disregarded entity as a domestic disregarded entity wholly owned by a foreign person, and treat it as a corporation for limited purposes under section 6038A.

That treatment exists solely to create the reporting obligation.

It changes nothing about how America taxes the income.

So the company stays disregarded for tax and becomes a reporting corporation for this one return.

In our practice the owners who meet this never set out to create an American reporting entity. They wanted a US-looking company for a US customer, and the obligation came attached.

If it had a reportable transaction, yes. The trap is that funding the company, paying its formation agent or lending it money all count as transactions with a related party, so a company that never trades can still have them.

A genuinely empty year with no movement at all is a different matter.

In our practice almost nobody has a genuinely empty year, because the registered agent gets paid from somewhere.

So dormant in commercial terms rarely means dormant for this purpose.

So treat the question as whether money moved, not whether the business traded. Those are different tests, and only the first one matters here.

A list of dealings between the entity and a related party, set out in the parts of the form. Monetary transactions are the common ones, and the instructions describe those as transactions for which money was the sole consideration paid or received.

Contributions of capital and distributions both qualify.

So does a loan in either direction, and the interest on it.

So the question is rarely whether a transaction exists, but which part of the form it belongs in.

Keep a simple ledger for the company from the day it exists. Four or five lines a year is usually the whole record, and reconstructing even that from personal bank statements is tedious.

You file a Form 1120 that carries almost nothing. The instructions say a foreign-owned US disregarded entity files a pro forma Form 1120 with Form 5472 attached, even where no income tax return is otherwise required of it.

The 1120 exists to carry the attachment rather than to report income.

Only the identifying details and the attachment matter.

So the filing is short, and skipping it is expensive.

Mark it clearly as a pro forma filing. An 1120 that looks like an attempt at a real corporate return invites questions the entity cannot answer.

Not as a foreign-owned disregarded entity. The instructions state plainly that an entity in that position cannot file Form 5472 electronically, which leaves post or fax as the only routes available to you. That single sentence catches out anybody expecting a modern filing experience.

That matters for timing from abroad.

Post from Britain to an American service center is not quick.

So build the delivery time into the deadline rather than the filing date.

Yes, and obtaining one frequently takes longer than the filing itself. The instructions require entities other than individuals to enter an employer identification number, so the company needs its own before it can file anything.

A foreign owner with no US identification number complicates the application.

Our guide to getting an ITIN covers the individual equivalent.

So start the number before the deadline rather than after.

With the return it attaches to. The instructions say to file it as an attachment to the reporting corporation's income tax return by that return's due date, extensions included. For a pro forma filing by a dormant company, that same corporate deadline governs.

For a pro forma filing the same deadline applies.

An extension to the 1120 extends this too.

So the date follows the corporate calendar rather than the owner's personal one.

Twenty-five thousand dollars for a failure to file. The instructions set a penalty of $25,000 on a reporting corporation that fails to file when due, and it applies per year rather than once.

Continued failure after notice can add more.

Nothing about the company being small or dormant reduces it.

So three quiet years is a six-figure exposure on an entity that never traded.

Also note what the penalty does not depend on. There is no turnover test, no de minimis for a tiny company, and no reduction for a year with no activity beyond the agent's fee.

It is the whole point of the provision. A foreign-owned US LLC is defined by exactly that: the rules bite where the sole owner is a foreign person, so a British founder triggers them and an American one does not.

A US person owning the same LLC reports the income on their own return instead.

Our guide to a US LLC and a UK resident member covers the UK side of holding one.

So the same company produces different obligations depending on who holds it.

Then it is usually a partnership rather than a disregarded entity, and different rules apply. A multi-member LLC files a partnership return, and its reporting obligations follow from that rather than from these instructions.

That is not necessarily simpler.

It differs, and it needs its own analysis.

So confirm the membership before assuming which regime you are in.

Not the obligation itself. A foreign person includes a foreign corporation, so a UK limited company holding a US LLC produces the same result as an individual holding it personally. What changes is who the related party is, and how much there is to report about dealings with it.

The related party in that case is the parent company.

Transactions between the two are precisely what the form asks about.

So a group structure usually has more to report rather than less.

Deal with it deliberately, because the penalty attaches per year and grows with silence. Filing the outstanding pro forma returns with a reasonable cause statement is the usual route, and the quality of that statement matters.

Quietly starting with the current year leaves the earlier ones open.

Our guide to reasonable cause penalty relief sets out what the IRS looks for.

So take advice on the statement before sending anything.

Gather the formation documents and the bank history first. A statement that rests on what somebody remembers about 2021 carries far less weight than one built on the record.

A short sequence for a foreign-owned US LLC with one member.

Often, and people ask it too late. An LLC serving no commercial purpose still generates an annual filing obligation, state fees and a registered agent cost, year after year, for as long as it exists on the register. None of that stops until somebody dissolves it properly.

Dissolving it properly ends the obligation going forward.

It does not clear the years already missed.

So close it if it is useless, and deal with the history either way.

Also check the state's own requirements. Dissolution usually has its own filings and fees, and an entity left half-dissolved keeps generating obligations.

Only through how HMRC sees the entity, which is a separate question entirely. HMRC treats a US LLC as opaque, so the British treatment follows distributions rather than profits, and the American filing changes none of that. The two systems are answering different questions about the same company.

That mismatch has its own consequences.

Our guide to a UK limited company with a US owner covers the mirror-image structure, and our US federal returns service deals with the American filings either produces.

So the American reporting and the British treatment are two problems, not one.

Consider a London software developer who formed a Delaware LLC in 2021 to take payments from an American client, then lost the client and left the company idle.

She funded the registered agent fee each year from her own account, which is a transaction with a related party.

Three years of pro forma returns were outstanding on a company that had earned nothing since 2022, with an exposure of $25,000 for each of them.

These figures are illustrative. The pattern is the usual one: the obligation outlived the business behind it.

The first assumes no income means no filing. The trigger is a reportable transaction, not profit.

The second treats paying the registered agent as nothing, when it is a transaction with a related party.

The third tries to file electronically, which a foreign-owned disregarded entity cannot do.

The fourth dissolves the company and assumes the missed years dissolve with it.

We establish whether you actually have a foreign-owned US LLC, which for a multi-member or US-owned company you may not.

Where it is, we prepare the pro forma filings and the reasonable cause statement together, because on missed years the statement does most of the work.

Our business and corporate tax service covers this ground, and fees stay fixed and agreed in writing. How we work sets out the process.

If you hold a US company from Britain, talk to us before the next deadline.