Form 5472 for Chileans with a U.S. LLC

Who files

Form 5472 reports transactions between a U.S. company and its foreign owners. Two situations are common for people in Chile:

• A single-member LLC owned by someone who is not a U.S. citizen or U.S. resident. For income tax it is "disregarded", but for this reporting rule the IRS treats it as a corporation. It files a pro forma Form 1120, with only the name, address and identification filled in, and attaches Form 5472.
• A U.S. corporation, or an LLC that elected corporate tax, that is 25% or more foreign-owned. It files a full Form 1120 with Form 5472 attached.

U.S. citizens and green card holders who own an LLC are generally not in this group; they report the LLC on their own Form 1040.

What counts as a reportable transaction

For a foreign-owned single-member LLC, almost everything that moves between you and the company counts, including:

• The money you put in to open the bank account or buy property.
• Distributions you take out, including transfers to your Chilean account.
• Loans in either direction.
• Expenses the LLC pays for you, or you pay for it, such as the registered agent fee.
• Sales of services or goods between you and the LLC.

Even an LLC that only paid its formation and state fees usually has something to report, so "no activity" is rarely a reason to skip the form.

How and when to file

• Employer identification number (EIN): required. LLC owners without a U.S. Social Security number can apply on Form SS-4.
• Due date: April 15 for a calendar-year LLC, extendable to October 15 by filing Form 7004 before April 15.
• Delivery: it cannot be e-filed. It goes by fax or by mail to the IRS unit named in the instructions.
• Records: the LLC must keep records that support what it reports.

The $25,000 penalty

A late, missing or substantially incomplete Form 5472 carries a penalty of $25,000 per form, per year. If the IRS sends a notice and the form is still missing 90 days later, it adds $25,000 for each further 30 days. Reasonable cause can be argued, but the penalty is assessed automatically in many cases, so prevention is much cheaper.

If your LLC has missed years, file the past returns before the IRS contacts you and include a reasonable-cause statement. We review the history first so every year tells a consistent story.

Beyond Form 5472

• U.S. income tax: if the LLC does business in the U.S. or owns U.S. rental property, you may owe U.S. tax and file Form 1040-NR. Services you perform from Chile for U.S. clients are generally foreign-source income for a nonresident, which often means no U.S. income tax, but the analysis depends on the facts.
• State rules: some states charge annual fees or franchise taxes regardless of income.
• Chile: as a Chilean resident, you report the LLC's income in Chile under Chilean rules, which may treat the LLC differently from the U.S. Your contador should see the LLC's figures each year.
• Estate tax: U.S. property held through an LLC can still be a U.S. asset for estate tax. See U.S. property and the $60,000 threshold.