US tax terms, in plain language.
The words that come with a US LLC you own from abroad, explained in plain language, with the official source for each one.
- Disregarded entity
A business entity with one owner that the IRS ignores for income tax: its income and expenses are treated as the owner's.
- Effectively connected income (ECI)
Income tied to a trade or business carried on in the United States. It is what makes a nonresident file Form 1040-NR.
- EIN (Employer Identification Number)
The 9-digit federal tax number the IRS assigns to a business, including an LLC with no employees.
- First-Time Abatement (FTA)
An IRS administrative waiver for taxpayers with a clean recent history. For Form 5472 it applies only in a narrow case described in the IRS manual.
- Foreign-owned U.S. DE
A US single-member LLC wholly owned by a foreign person. It is ignored for income tax but treated as a corporation for Form 5472.
- Form 1040-NR
The US individual income tax return for nonresidents. An LLC owner abroad files it when they have US-connected income or want back US tax withheld.
- Form 5472
The IRS information return a foreign-owned US company, including a single-member LLC, files to report its owner and its transactions with related parties.
- Form 7004
The form that gives a business an automatic 6-month extension to file, including the pro forma Form 1120 with Form 5472.
- Form 8832
The form an LLC uses to choose how the IRS taxes it, for example as a corporation instead of a disregarded entity or partnership.
- Form W-8BEN
The form a foreign individual gives a payer to certify foreign status. For a single-member LLC owned by a foreign person, the owner gives a W-8, not a W-9.
- FTIN (Foreign Taxpayer Identification Number)
The tax identification number your country of residence gives you. A foreign-owned LLC must report its owner's FTIN on Form 5472.
- ITIN (Individual Taxpayer Identification Number)
A 9-digit IRS number for individuals who need a US tax number but cannot get a Social Security number.
- Pro forma Form 1120
A Form 1120 used only as a cover for Form 5472: the LLC fills in its name, address, EIN and item E, and leaves every income and tax line blank.
- Reasonable cause
The ground for asking the IRS to remove a penalty: you acted with ordinary business care and prudence but still could not comply on time.
- Registered agent
The person or company, with a physical address in the state, that receives official legal and state documents for your LLC.
- Related party
For Form 5472, any person or company connected to the LLC, starting with its 25% foreign owner. One Form 5472 is filed per related party.
- Reportable transaction (Form 5472)
Any money or value moving between the LLC and a related party, including capital you put in and money you take out.
- Substantial presence test
The day-count test that decides whether a non-US citizen becomes a US tax resident: 31 days this year and 183 weighted days over three years.
- US trade or business
Business activity carried on in the United States, by you or by people acting for you. It is the trigger for effectively connected income.