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

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

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

Shiny new offices like Ryan’s in London Bridge aren’t just a cost – they signal that a firm is willing to align with its clients’ interests
Darren Graves will succeed Richard Houston, who is set to lead Deloitte EMEA; in other news, Morgan Lewis hired a three-partner tax team in New York
India also signed its first-ever bilateral APAs with France, Ireland, Indonesia and Sweden last year, the CBDT revealed
Chile’s revamped GAAR marks a shift toward structural scrutiny, pushing MNEs to strengthen tax governance, economic substance and compliance strategies
New reforms represent the most seismic shift in Canadian TP legislation since its enactment and a clear inflection point for MNEs, ITR has heard
Spain did not transpose EU VAT rules for SMEs or works of art; in other news, an increased VAT threshold came into force in South Africa
While the IBS incorporates taxable events previously covered by state and municipal taxes, its governance and operational logic represent a significant departure from the legacy model
The new office on the fourth floor of 4 More London will span 14,230 square feet, with the potential to expand to the first and second floors
MNEs now face a shift from modelling to execution as the side‑by‑side deal forces tax teams to upgrade systems, harmonise data, and prevent costly pillar two mismatches
As recent surveys suggest a disconnect between AI adoption and employee engagement, the big four risk digging themselves into a strategic hole
Gift this article