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

Levine, who served under the Joe Biden administration, led the US’s negotiations on the OECD’s two-pillar solution
The deal to acquire ITR's parent company is expected to complete by the end of May 2025
JBS, the biggest meat company in the world, allegedly used Luxembourgian ‘mailbox companies’ to avoid taxes between 2019 and 2022
Despite the conviction of Jessa Dabalos, the Tax Practitioners’ Board’s investigative work continues with five outstanding PwC scandal probes
Heads of tax need to push their teams forward as strategic business advisers to add value across their organisations, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Gift this article