The US a TAX HAVEN? COULD BE QUESTIONABLE GOING FORWARD GIVEN THE NEW SCRUTINY OF DISREGARDED ENTITIES….
Through the Foreign Account Tax Compliant Act (FATCA), the U.S. government receives certain information regarding “U.S. Persons” from around the world. The U.S. automatically shares certain tax information collected from U.S. financial institutions that hold non-U.S. natural person accounts with other jurisdictions with which it has an automatic exchange of information agreement.
Because the U.S. is not participating in the Common Reporting Standard (CRS) implemented by the Organization for Economic Cooperation and Development, the global consensus seems to be that the U.S. receives more tax information than it provides to other countries. Furthermore, certain non-US natural persons can maintain accounts in US financial institutions without being subject to FATCA or CRS reporting obligations.
In addition, several states do not require information regarding the Ultimate Beneficial Owner (UBO) of entities formed within their jurisdictions. These states believe that the U.S. government has an existing process for collecting “beneficial ownership” information regarding business entities via federal tax filings and financial disclosure reports.
Certain domestic business entities, such as single member Limited Liability Companies are classified by default as "disregarded entities" if they have only one owner. The Treatment of Certain Domestic Entities Disregarded as Separate From Their Owners as Corporations was finalized by IRS in December 2016. It dampens the perception of the US as a Tax Haven. Previously, many foreign investors were able to purchase US Real Estate through single member LLCs without having to disclose its actual UBO. As of January 2017, foreign-owned disregarded entities will be treated as domestic corporations for reporting purposes. They now have to keep certain financial records and file IRS FORM 5472 disclosing their UBO. Accurately filing Form 5472 ends UBO “anonymity.” Failure to file Form 5472 can result in a minimum $10,000.00 penalty per failure.
The enforcement of U.S. tax laws has a significant impact on the decision making of ultra high net worth (UHNW) Individuals who are looking for “efficient capabilities” such as confidentiality, tax minimization, asset management and security of information
An ongoing inflow of money into the U.S. reflects an international perception that if the U.S. can offer these capabilities, plus “not share” tax information with foreign jurisdictions, why not move high net worth wealth here?
Don’t be a victim of your own making. Foreign owners of disregarded entities need to consider the new filing and record keeping requirements that are now in place for single member LLCs. Consult with your tax specialist.