US: Domestic disregarded entities: New reporting rules in the US

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

US: Domestic disregarded entities: New reporting rules in the US

Fuller-James
Forst-David

Jim Fuller

David Forst

The US Treasury and the Internal Revenue Service (IRS) have proposed regulations that would treat a domestic disregarded entity (DRE) that is wholly-owned by a foreign person as a domestic corporation separate from its owner for the limited purposes of the reporting, record maintenance and associated compliance requirements that apply to 25% foreign-owned domestic corporations under § 6038A.

The preamble states that these changes intend to provide the IRS with improved access to information that it needs to satisfy its obligations under US tax treaties, tax information exchange agreements and similar international agreements, as well to strengthen the enforcement of US tax laws.

Because the proposed regulations would treat the affected domestic entities as foreign-owned domestic corporations for the specific purposes of § 6038A, they will be reporting corporations within the meaning of § 6038A. Consequently, they will need to obtain employer identification numbers and will be required to file Form 5472 with respect to reportable transactions between the entity and its foreign owner or other foreign related parties.

To ensure that these entities report all transactions with foreign related parties, the proposed regulations specify an additional category for reporting transactions for these purposes within the meaning of Treasury Regulation § 1.482-1(i)(7). This proposed change will mean these entities will be treated as separate taxpayers for the purpose of identifying transactions and being subject to requirements under § 6038A) to the extent not already covered by another reportable category. The term "transaction" is defined in Treas. Reg. § 1.482-1(i)(7) to include any sale, assignment, lease, license, loan, advance, contribution, or other transaction of any interest in or a right to use any property or money, as well as the performance of any services for the benefit of, or on behalf of, another taxpayer.

For example, under the proposed regulations, contributions and distributions would be considered reportable transactions with respect to these entities.

The penalty provisions associated with failure to file Form 5472 and failure to maintain records would also apply to these entities.

If the proposed regulations are approved, the provisions will apply for taxable years that end on or after the date that is 12 months after the date the regulations are published as final regulations.

Jim Fuller (jpfuller@fenwick.com) and David Forst (dforst@fenwick.com)

Fenwick & West

Website: www.fenwick.com

more across site & shared bottom lb ros

More from across our site

The arrival of a seven-strong team from Baker McKenzie will boost WTS Germany’s transfer pricing capabilities and help it become ‘a European champion’, the firm’s CEO said
Germany has forgotten to think about digital reporting requirements, a WTS partner claimed at ITR’s Indirect Tax Forum 2025
E-invoicing is currently characterised by dynamism, with fragmentation acting as a key catalyst for increasing interoperability, says Aida Cavalera of the International Observatory on eInvoicing
Pillar two and the US tax system ‘could work in harmony’, Scott Levine tells ITR in an exclusive interview to mark his arrival at Baker McKenzie
Peter White, who has a tax debt of A$2 million, has been banned for five years from seeking registration with Australia’s Tax Practitioners Board (TPB)
Wopke Hoekstra’s comments followed US measures aimed against ‘unfair foreign taxes’; in other news, Grant Thornton and Holland & Knight made key tax partner hires
An Administrative Review Tribunal ruling last month in Australia v Alcoa represents a 'concerning trend' for the tax authority, one expert tells ITR
A recent decision underlines that Indian courts are more willing to look beyond just legal compliance and examine whether foreign investment structures have real business substance
Following his Liberal Party’s election victory, one source expects Mark Carney to follow the international consensus on pillar two, as experts assess the new administration
A German economics professor was reportedly ‘irritated’ by how the Finnish ministry of finance used his data
Gift this article