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U.S. Entities with Foreign Ownership

1.1.1

Foreign-Owned Disregarded Entities
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1.1.2

Partnerships with Foreign Partners
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S Corporations with Foreign Shareholders

1.1.3

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1.1.4

C Corporations with Foreign Shareholders
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A practical tool designed to help identify U.S. international information reporting requirements based on specific facts and ownership thresholds.

This page focuses specifically on U.S. entities with foreign ownership, including Foreign-Owned Disregarded Entities, Partnerships with Foreign Partners, and U.S. Corporations with foreign shareholders. It addresses reporting obligations triggered by inbound ownership and transactions involving foreign persons.

Within each category, reporting requirements are presented as flashcards, each tied to a specific triggering condition.

Each flashcard follows a consistent structure. The front of the card describes the relevant fact pattern or ownership threshold, while the back identifies the required IRS form or forms.

This format allows tax professionals to quickly match a U.S. entity’s ownership structure and foreign involvement to the applicable reporting obligation and determine the correct forms to include with the tax return.

1.1 FOREIGN-OWNED DISREGARDED ENTITES

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A U.S. disregarded entity (e.g., single-member LLC) owned by a foreign person that has reportable transactions with its foreign owner or related parties.
Form 5472 — Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

  • Form 5472 reports transactions between the entity and its foreign owner or related parties

  • Applies even if there is no income or no tax due

A U.S. disregarded entity (e.g., single-member LLC) owned by a foreign person that has to file 5472
Pro Forma 1120

  • Pro Forma Form 1120 is filed with:

    • Income = 0

    • Tax = 0

    • Clearly marked: “PRO FORMA – FILED TO ATTACH FORM 5472

  • Used as a  cover sheet / identifier for Form 5472

  • Form 5472 contains the substantive transaction reporting

1.2 PARTNERSHIP WITH FOREIGN PARTNERS

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Partnership has foreign partners and generates Effectively Connected Taxable Income* related to its American business operations.
Form 8804 - Annual Return for Partnership Withholding Tax (Section 1446)

  • Form 8804 is filed annually by the partnership to report total Section 1446 withholding.

  • Summarizes all withholding on foreign partners’ allocable share of income.

  • Withholding is calculated at the highest applicable U.S. tax rate:

    • 37% for foreign individuals

    • 21% for foreign corporations

  • Works together with Forms 8805 and 8813

Partnership allocated ECTI* to foreign partner(s), regardless of whether cash distributions are made.
Form 8805-Foreign Partner's Information Statement of Section 1446 Withholding Tax

  • Form 8805 is issued to each foreign partner (similar to a K-1 + withholding statement).

  • Reports:

    • Share of ECTI

    • Tax withheld on their behalf

  • Required for partners to claim credit on their U.S. tax return:

    • Form 1040-NR (individual)

    • Form 1120-F (foreign corporation)

Partnership made payments to foreign partner(s), withheld tax on their share of ECTI, and must remit the withholding to the IRS.
Form 8813 - Partnership Withholding Tax Payment Voucher

  • Form 8813 is used to remit withholding tax to the IRS throughout the year.

  • Payments are generally due quarterly (April 15, June 15, September 15, and December 15).

  • Applies to withholding on foreign partners’ share of ECTI, even if not distributed in cash.

*ECTI

Income that: 
 

  • Results from actively engaging in business within the U.S.  

  • Is not passive income.  

  • Is subject to U.S. graduated income tax rates.

1.3 S CORPORATION WITH FOREIGN OWNERS

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Ownership of S Corporation by Nonresident Aliens
Warning - Prohibited: Ownership by a nonresident alien will terminate the S election

  • Nonresident aliens (NRAs) are generally prohibited from being shareholders in an S Corporation, and having one will terminate the S election.

  • S corporations are limited to 100 shareholders, and shareholders must generally be eligible persons. U.S. citizens and U.S. resident individuals may qualify, but nonresident aliens are not eligible shareholders.

A U.S. corporation that had at least one 25% foreign shareholder and was engaged in reportable transactions during the tax year
Form 5472 - Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

  • Form 5472 is required for foreign-owned U.S. corporations with reportable transactions. 

  • Covers transactions such as:

    • Payments​

    • Loans

    • Capital Contributions

  • ​Filed with Form 1120

1.4 C CORPORATION WITH FOREIGN OWNERS

The entity made payments of U.S.-source passive income (FDAP - dividends, interest, royalties) to foreign persons.
Form 1042 - Annual Withholding Tax Return for U.S. Source Income of Foreign Persons

  • Form 1042 reports the total tax liability for the year under Chapters 3 and 4 of the Internal Revenue Code, including FATCA (Chapter 4) withholding.

  • Requires Withholding (generally 30%)

  • Reduced rates may apply under tax treaties, with proper W-8 documentation (more often than not).

The entity made payments of U.S.-source passive income (FDAP - dividends, interest, royalties) to foreign persons.
1042-S - Foreign Person's U.S. Source Income Subject to Withholding

  • Form 1042-S is the recipient-level information reporting

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