Expat with a SMLLC, didn't get an EIN, never filed 8832. Am I doing something wrong?

[ale_marcano]

I formed a new company (which is basically a single member LLC) in Sweden in January 2021. As the title says, I didn't get an EIN, and never filed form 8832 to choose this as a disregarded entity. I contacted a CPA who told me that it was too late to make the election to treat this as a disregarded entity and that the IRS would treat it as a corporation, hence they recommended that I file form 5471, which I did in October as part of my 2021 taxes.

Now, that I had the time to read up a little on this topic, I'm not really sure if this was the right thing to do. What I understand is that, as a SMLLC, the IRS would automatically treat my company as a disregarded entity, so there was no need to file other forms (not even 8832). I would of course prefer to treat my company as a disregarded entity so everything is reported in Schedule C which is much simpler.

Can someone please help me and tell me if I am mistaken and what forms are the ones that I need to file? Now that the 5471 is filed, should I send an amendment?  should I continue filing 5471 every year? or should I send a 8832 to make the choice to treat this as a disregarded entity?

[Anonymous_ · Accepted solution]

There is no need to file Form 8832 as a simgle-member LLC is, by default, treated as a disregarded entity by the IRS.

@pk

[Opus 17]

A single member LLC is by default, a disregarded entity. You would need to file form 8832 if you wanted to be treated as an S corporation.  For foreign businesses, you need to file form 8832 if you want to be classified as a corporation (C corporation), or a partnership, or a disregarded entity that is different from the owner. If you don’t file the form and you are not a foreign corporation, then you are a disregarded entity by default.  

There is no deadline to file this form, however the election can’t be more than 60 days retroactive. So if you wanted to be treated as an S  C corporation from the start, it’s too late. But it would not be too late to file to be treated as a corporation beginning effective January 1, for example.

However, it sounds like you don’t want to do this and you want to be treated as a disregarded entity and file a schedule C. This is perfectly acceptable, and it’s the default position.  

Incidentally, the IRS does not recognize LLCs, they are creations of state law and not recognized by federal law, and every state has slightly different rules. Whatever you have formed in the country where you live, as long as it is not a corporation according to the law of the foreign country, you will be treated as a disregarded entity.

It appears to me that filing form 5471 was incorrect, since you are not an officer, a director, or shareholder of a foreign corporation. I am assuming this to be correct based on your description that your business is organized similar to an LLC.

If you are a disregarded entity, you do not need an EIN unless you are paying employees. You can use your Social Security number for your business. However, many people prefer to get an EIN so they don’t have to give their personal Social Security number to their contractors and vendors. You can get an EIN on line at the IRS web site in about 15 minutes.

Last but not least, if you really are a foreign corporation, then all bets are off, everything I said above is may be wrong, and you need to seek immediate professional assistance.  Just because you think your business is “basically an LLC“ under Swedish law doesn’t mean that you have not made a serious misunderstanding. A US LLC is not a corporation, it is a limited liability company formed under state law and is not recognized as a corporation by federal law. However, if Sweden recognizes you as a corporation, then you are a corporation and you must deal with your US tax returns from that point of view.

[Anonymous_]

An LLC would file Form 8832 to elect to be treated as a C corporation and Form 2553 to elect to be treated as an S corporation. 

[Opus 17]

Form 8832 can be filed to request classification as "A foreign eligible entity with a single owner electing to be disregarded as a separate entity." (Line 6f).

If you are correct that you are not a foreign corporation but are something that would be treated as an SMLLC under US law, then I believe the default is to be treated as a disregarded entity so the form is not required, although it may be desirable to file the form so there is no ambiguity.  

[Anonymous_]

The fact is Form 8832 cannot be used to elect to be treated as an S corporation for federal income tax purposes as suggested earlier.

[Opus 17]

@Anonymous_ 

I made the corrections above. 

What seems to have happened here is the taxpayer’s advisor was exactly backwards.  The advisor seems to have said that form 8832 was required to not be taxed as a corporation, when in fact the taxpayer is a disregarded entity by default and would use form 8832 (or form 2553) if they wanted to be taxed as a corporation.  

[pk]

@ale_marcano , having gone through the above  discussion and generally agreeing  with @Opus 17  and @Anonymous_ ,  still I would like to add the following:

(a) an  US registered entity ( i.e. one operating under the US tax laws  ), has at least  three   extra-business  requirements  ---

                1. withhold  employee taxes  and transmit to the taxing authorities  as part of Pay as you earn -- US version .  Therefore the need for EIN; 

                2. Contribute  to employees' FICA , collect the FICA taxes and transmit to taxing authorities;

                3. File its own tax return   ( stand-alone  or otherwise ) hence the need for a Tax ID.   It uses  EIN  ( for states  often EIN or a separate ID for State of domicile/ registry ).  Depending on the type of entity , there are differences in how the reporting is done , which form and whom pays the  taxes due.

(b) A foreign entity with nil presence ( physical and income source/ connection )  in the USA is beyond the ambit of US tax laws , even if owned by a US person/entity -- generally.  However the income  from such endeavors that is attributable / flowing  to the US person/ entity is part of the world income of the taxpayer ( person /entity).

(c) Therefore the whole question of tax id, reporting of the income etc. of a foreign entity ( constituted  under the laws of another country is generally not applicable.

(d) A US person  having a sole proprietor business ( be it a store/ consulting/ professional services or what have you  )  in another country, however is a taxpayer with a foreign source of income.  This income indeed can /should be reported as a Schedule-C income and may be eligible for Foreign Earned Income exclusion and/or foreign tax credit.  This  treatment is identical if the taxpayer were located in the USA or with a taxhome in foreign land.

Does this make sense  ?

pk