US LLC Tax Glossary

A 25% foreign shareholder is a foreign person or company that owns, directly or indirectly, at least 25% of a US corporation's stock by vote or value. Having one makes the corporation a reporting corporation that may need to file Form 5472.

An apostille is an official certificate that makes a US document, such as your LLC's formation papers, legally recognized in other countries under the Hague Convention. Non-resident founders use apostilles to prove their US company exists to foreign banks and authorities.

The BOI report is a beneficial ownership filing with FinCEN, a Treasury bureau separate from the IRS, identifying the people behind a company. Under FinCEN's March 2025 interim final rule, US-formed companies are exempt as of mid-2026, but IRS filings like Form 5472 continue unchanged.

A C-corp election is an LLC's choice, made on Form 8832, to be taxed as a C corporation. The LLC then files a full Form 1120, pays the 21% corporate tax on profits, and attaches Form 5472 when it is 25% or more foreign-owned.

A capital contribution is money or property an owner puts into their company without expecting repayment, such as wiring $5,000 to the LLC bank account. For a foreign-owned LLC, every contribution is a reportable transaction that must appear on Form 5472.

Constructive ownership is a set of IRS rules that treat you as owning shares that are actually held by your family members or related companies. It is used to decide who counts as a 25% foreign shareholder for Form 5472.

A CP215 notice is the IRS letter that tells a business a civil penalty has been charged, most often $25,000 for a late or missing Form 5472. It states the amount, the tax year, and starts the clock on additional penalties if the failure continues.

A disregarded entity is a business with one owner that the IRS ignores as separate from that owner for income tax purposes. A single-member LLC is the most common example, and a foreign-owned one must still file Form 5472 with a pro forma Form 1120.

A distribution is money or property a company pays out to its owner, such as withdrawing $2,000 of profit from the LLC bank account. For a foreign-owned LLC, every distribution is a reportable transaction on Form 5472.

Effectively connected income is income tied to running a trade or business inside the United States. Unlike passive US income, ECI is taxed at regular graduated rates and usually requires the foreign owner to file a US income tax return.

An EIN is a nine-digit number the IRS assigns to identify a business, formatted like 12-3456789. Every foreign-owned LLC needs one to file Form 5472, Form 1120, or Form 1065, and to open a US bank account.

The FBAR, FinCEN Form 114, is an annual report of foreign bank accounts filed by US persons whose foreign accounts together exceed $10,000 at any point in the year. It goes to FinCEN, not the IRS, and is separate from Form 5472.

FDAP income is passive US-source income that is fixed, determinable, annual, or periodical, such as dividends, royalties, rent, and certain interest. It is taxed at a flat 30% withholding rate for foreign persons unless a tax treaty lowers it.

First-time abatement is an IRS policy that removes certain penalties for taxpayers with a clean three-year compliance history, no questions asked. It helps with late Form 1065 penalties but generally does not apply to the $25,000 Form 5472 penalty.

A foreign-owned U.S. DE is a US disregarded entity, usually a single-member LLC, whose only owner is a foreign person or company. It must file Form 5472 attached to a pro forma Form 1120 every year it has reportable transactions.

Form 7004 is the IRS application for an automatic six-month extension of time to file business returns, including Form 1120 and Form 1065. Filing it moves a foreign-owned LLC's Form 5472 deadline from April 15 to October 15.

Form 8832 is the entity classification election, the IRS form an LLC uses to choose how it is taxed: as a corporation, a partnership, or a disregarded entity. Filing it changes which annual return the company owes, such as Form 1120 instead of Form 5472 with a pro forma 1120.

Forms 8804 and 8805 report the US tax a partnership must withhold on each foreign partner's share of effectively connected income under section 1446. Form 8804 is the partnership's summary; Form 8805 is the per-partner statement that accompanies the Form 1065 season.

Franchise tax is a fee a state charges a company for the privilege of existing there, regardless of income. Delaware charges LLCs a flat $300 per year, due June 1. It is separate from every IRS filing, including Form 5472 and Form 1065.

Guaranteed payments are amounts a partnership pays a partner for services or the use of capital, fixed without regard to profit, like a set $2,000 monthly fee. The LLC deducts them, and each one lands on the receiving partner's Schedule K-1.

An initial return is the first tax filing a company ever submits, marked with the Initial return checkbox on Form 1120 or Form 1065. For a new foreign-owned LLC, it covers the period from formation to the end of the first tax year.

An ITIN is a nine-digit personal tax ID the IRS issues to people who need a US taxpayer number but cannot get a Social Security number. Foreign LLC owners often do not need one for Form 5472, but may need one for a personal return or a K-1.

A NAICS code is a six-digit number that classifies what industry a business operates in, such as 454110 for online retail. The IRS asks for it as the principal business activity code on Form 1120, Form 1065, and Form 5472.

Paid-in capital is the running total of everything an owner has invested in a company since it was formed. It grows with each capital contribution and gives context to the yearly amounts reported on Form 5472.

Partner basis is the running measure of a partner's investment in a partnership for tax purposes. It rises with contributions and profit shares, falls with distributions and losses, and determines whether cash taken out of a multi-member LLC is taxable.

The partnership representative is the person or entity named on Form 1065 with sole authority to deal with the IRS for the partnership. The representative must have a substantial presence in the US, including a US address and US taxpayer number.

A permanent establishment is a fixed place of business, such as an office, branch, or dependent agent, that a tax treaty uses to decide whether a country may tax a foreign company's business profits. No permanent establishment usually means no US tax on treaty-protected profits.

A pro forma 1120 is a mostly blank Form 1120 that a foreign-owned single-member LLC files as a cover page for Form 5472. Only the name, address, EIN, and a few checkboxes are completed; no income tax is calculated on it.

Reasonable cause is the IRS standard for forgiving a penalty when a taxpayer shows they acted responsibly but still could not comply. It is the main way to fight the $25,000 Form 5472 late-filing penalty.

A registered agent is a person or company with a physical address in your LLC's formation state that receives legal documents and state mail for the business. Every US LLC must have one, but the agent does not handle IRS filings like Form 5472.

A related party is any person or company connected to a US business through ownership or family ties, such as its foreign owner or a sister company. Transactions with related parties are what Form 5472 exists to report.

A reportable transaction is any exchange of money or property between a US company and its foreign owner or another related party that must be listed on Form 5472. It includes capital contributions, distributions, loans, rent, and payments for services.

The responsible party is the individual who controls a business and its funds, named on Form SS-4 when applying for an EIN. For a foreign-owned single-member LLC, it is normally the foreign owner, even without a US tax number.

Schedule K-1 is the form a partnership attaches to Form 1065 to show each partner's share of the year's profit, loss, and other tax items. Every member of a multi-member LLC, including non-resident partners, receives one and uses it for their own tax filing.

Section 6038A is the law in the Internal Revenue Code that requires foreign-owned US companies to file Form 5472 and keep records of related-party transactions. It sets the $25,000 penalty for not filing, plus $25,000 more for each 30 days of continued failure.

Substantial compliance is the standard the IRS uses to judge whether a filed Form 5472 counts as filed at all. A form with missing related parties, blank transaction amounts, or wrong identifying details can be treated as not filed and penalized $25,000.

A tax treaty is an agreement between the United States and another country that decides which country taxes which income and lowers withholding rates. Treaties can reduce the 30% rate on passive income and protect business profits when there is no US permanent establishment.

A tax year is the 12-month accounting period a business reports on. Nearly all foreign-owned LLCs use the calendar year, January 1 to December 31, which sets the Form 5472 deadline at April 15 and the Form 1065 deadline at March 15.

Form W-8BEN is a certificate a foreign individual gives to US banks and payment platforms to prove they are not a US taxpayer and to claim tax treaty rates on US income. It is kept by the payer, not sent to the IRS, and does not replace Form 5472.