What are disregarded entities and how does this relate to an IRS FBAR? There is a lot about “disregarded entities” in the news recently due to a recent ruling by the IRS in conjunction with offshore asset and income reporting and FBAR requirements. A disregarded entity has been the IRS’ term for a single member LLC who has elected to have the IRS treat the entity as part of the individual’s tax return. LLCs can be treated as a corporation, a partnership or as part of a taxpayer’s tax return. If there are multiple members in the LLC, it must be treated as a partnership for IRS purposes, unless the LLC elects to file form 8832 to be considered as a corporation.
Under recent new rules released by the Treasury Department, the IRS has been receiving new information about foreign companies who do business in the United States. One portion of the new ruling provides legislation forcing LLCs and corporations to provide detailed information on those who hold a beneficial interest at the time of formation. Another component of the ruling requires banks to obtain more detailed information when accounts are created and to provide that information directly to the IRS.
Foreign companies are currently operating through disregarded entities, and this has been a potential loophole in the IRS and Department of Justice strategy concerning FATCA compliance and the reporting of offshore accounts, assets and income. The recent ruling separates these “disregarded entities” from their owners (individual taxpayers), treating them as stand alone corporations for tax and reporting purposes. IRS Associate Chief Counsel (International) Marjorie Rollinson recently described the reasoning behind the IRS’ change in guidance as “we can’t give ownership information to our treaty partners who have been asking for it.”
Clearly the Treasury Department, US Department of Justice and the IRS continue to crack down on offshore accounts, assets and income and the strategies used to shelter income and assets from US taxation. Reporting requirements and the information available to the IRS on individual US taxpayers continues to expand at a rapid rate. The time to come into FBAR compliance is at hand. Contact Allen Barron or call today to schedule a free and substantial consultation at 866-631-3470 and learn about the protections of the attorney-client privilege, protections of the VDP and other voluntary disclosure programs, and the steps required to come into compliance with the IRS.