For tax and liability reasons businesses in the United States entities are designated as sole proprietorships, partnerships, limited liability corporations (LLC), and C and S Corporations for tax and reporting purposes. Each entity bears different responsibilities for reporting income and transactions, and individual owners have different obligations for the actions of their businesses.

Another designation, Domestic Disregarded Entity (DDE), can be a single foreign owner who enjoys limited liability. Until recently, foreign-owned DDEs were not all required to file a tax return or even apply for an Employee Identification Number (EIN) required of domestically owned businesses with employees.

New regulations issued on December 12, 2016, by the U.S. Treasury Department and the Internal Revenue Service intend to open up information access and reporting requirements for the DDEs. This authorization will allow the IRS to demand higher reporting levels, record-keeping, and compliance that already apply to 25% foreign-owned corporations.  

Also, the foreign-owned DDEs will be required to file for an EIN.

Intent of the Regulation

The stated purpose of these new regulations is to clarify and document the DDEs reporting to better satisfy U.S. obligations under tax treaties with other nations and any other reciprocal agreements. Needless to say, the intent is also to strengthen U.S. tax laws that have had virtually no enforcement in this category.

The reporting requirements will also expose the amounts paid for the formation, sale, or dissolution of the business.

Finally, DDEs that had in the past been under no obligation to file tax returns will now be required to do so.

Download the full article below pertaining to the finalized regulations requiring foreign-owned domestic disregarded entities to report information about their ownership and intercompany transactions.