There is a lot about “disregarded entities” in the news recently due to a new 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 new rulings released by the Treasury Department this week, the IRS is to begin receiving new information about foreign companies who do business in the United States. One portion of the new ruling proposes 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 proposal will require 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 is a potential loophole in the IRS and Department of Justice strategy concerning FATCA compliance and the reporting of offshore accounts, assets and income. The new rules would separate 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 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 for a free and substantial consultation at 866-631-3470 and learn about the protections of the attorney-client privilege, protections of the OVDP and other voluntary disclosure programs, and the steps required to come into compliance with the IRS.