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If I decide to set up a foreign LLC and elect to have it treated as a disregarded entity so that taxes flow onto my 1040, can you tell me if I only fill out forms related to the 1040? What are those forms? Schedule C or E?
Are there any other forms required to be filed for a foreign LLC by a U.S. person when it is classified as a disregarded entity? What are those forms?
REPLY:
I've not found any authoritative information on whether an exempt entity is required to file the same forms as a taxable person. However, I advise my clients to do so because the penalties are based on a mere late filing of the forms regardless of whether any tax is due. Also, the government generally regards any redundant paperwork and financial disclosure as not being harmful to the taxpayer -- so their general attitude is "When in doubt file the report."
Income passing through to an IRA from a disregarded foreign entity would be like any other income unless it has the character of unrelated business taxable income (UBTI) -- which can subject the IRA to some taxes.
With regard to PFICs and the section 1297 throwback tax, the throwback tax for "excess distributions" or for gains on dispositions of shares is based on multiplying the allocated income or gains (by year) to the maximum tax rate for each year. An IRA would not have a tax rate schedule such as for a corporation, joint return, accumulation trust, etc. Therefore, the default tax on PFIC distributions should not be applicable to an IRA.
Vern
As required by U.S. Treasury Regulations governing tax practitioners, any written tax advice contained herein cannot be used by any taxpayer for the purpose of avoiding certain tax penalties that may be imposed under the Internal Revenue Code. For further details seehttp://www.offshorepress.com/vkjcpa/disclosurerules.htm
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