Multi
Member
LLC

Form 1065 is an informational tax return filed annually to report the income, gains, losses, deductions and credits from the operation of a partnership. In addition to Form 1065, partnerships must also submit Schedule K-1, a document prepared for each partner.

All domestic partnerships must file Form 1065: U.S. Return of Partnership Income. This includes limited liability companies(LLCs) classified as domestic partnerships and headquartered in the U.S. The IRS defines a partnership as two or more people who carry on a trade or business together.

Foreign partnerships with income in the U.S. must also file Form 1065.

Nonprofit religious organizations also file this form. They must show that profits were given to their members as dividends, regardless of whether the dividends were distributed.

Multi Member LLC must file form 1065 and Schedules K-1.

Form 5472 - If the LLC has non-U.S. members as partners, there is no Form 5472 filing requirement for the LLC.

For any LLC there are some minimum filing obligation. Either a Form 5472 filing for the foreign-owned U.S. disregarded entity (Single member LLC) or a Form 1065 filing for a multimember LLC taxed as a partnership (Multi Member LLC). The IRS imposes steep penalties for failing to timely file these returns.

A foreign-owned U.S. disregarded LLC that fails to timely file Form 5472 is subject to a $25,000 penalty. Failing to file Form 1065 is subject to a penalty of $205 for each month the return is late, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year the return is due.

In general, the deadline to the LLC's annual federal tax return including forms 1065 & 5472 and all related schedules and statements is April 15 of each year for the previous tax year. This means that the deadline to file the 2022 tax return is April 15, 2023. If April 15 falls on a weekend, the deadline will be extended to April 18.

A foreign-owned U.S. disregarded LLC that fails to timely file Form 5472 is subject to a $25,000 penalty. Failing to file Form 1065 is subject to a penalty of $205 for each month the return is late, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year the return is due.

A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3.

Note. Filing a substantially incomplete Form 5472 constitutes a failure to file Form 5472.

Each member of a group of corporations filing a consolidated information return is a separate reporting corporation subject to a separate $25,000 penalty and each member is jointly and severally liable.

If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $25,000 will apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period ends.

Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.

A reporting corporation is either:

• A 25% foreign-owned U.S. corporation (including a foreign-owned U.S. disregarded entity (DE)), or

• A foreign corporation engaged in a trade or business within the United States.

25% foreign owned.

A corporation is 25% foreign owned if it has at least one direct or indirect 25% foreign shareholder at any time during the tax year.

25% foreign shareholder. Generally, a foreign person (defined later) is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either:

• The total voting power of all classes of stock entitled to vote, or

• The total value of all classes of stock of the corporation.

The constructive ownership rules of section 318 apply with the following modifications to determine if a corporation is 25% foreign owned. Substitute “10%” for “50%” in section 318(a)(2)(C). Do not apply sections 318(a)(3)(A), (B), and (C), so as to consider a U.S. person as owning stock that is owned by a foreign person.

Direct 25% foreign shareholder. A foreign person is a direct 25% foreign shareholder if it owns directly at least 25% of the stock of the reporting corporation by vote or value.

Ultimate indirect 25% foreign shareholder. An ultimate indirect 25% foreign shareholder is a 25% foreign shareholder whose ownership of stock of the reporting corporation is not attributed (under the principles of sections 958(a)(1) and (2)) to any other 25% foreign shareholder. See Rev. Proc. 91-55, 1991-2 C.B. 784.

A related party is:

• Any direct or indirect 25% foreign shareholder of the reporting corporation,

• Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation,

• Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to a 25% foreign shareholder of the reporting corporation, or

• Any other person who is related to the reporting corporation within the meaning of section 482 and the related regulations.

“Related party” does not include any corporation filing a consolidated federal income tax return with the reporting corporation.

The rules in section 318 apply to the definition of related party with the modifications listed under the definition of 25% foreign shareholder, earlier.

A reportable transaction is:

• Any type of transaction listed in Part IV (for example, sales, rents, etc.) for which monetary consideration (including U.S. and foreign currency) was the sole consideration paid or received during the reporting corporation’s tax year;

• Any transaction or group of transactions listed in Part IV, if:

1. Any part of the consideration paid or received was not monetary consideration, or

2. Less than full consideration was paid or received; or

• Any transaction listed in Part V.

Transactions with a U.S. related party, however, are not required to be specifically identified in Parts IV, V, and VI.

A foreign person is:

• An individual who is not a citizen or resident of the United States;

• An individual who is a citizen or resident of a U.S. possession who is not otherwise a citizen or resident of the United States;

• Any partnership, association, company, or corporation that is not created or organized in the United States;

• Any foreign estate or foreign trust described in section 7701(a)(31); or

• Any foreign government (or agency or instrumentality thereof) to the extent that the foreign government is engaged in the conduct of a commercial activity as defined in section 892.

However, the term “foreign person” does not include any foreign person who consents to the filing of a joint income tax return.

A DE is an entity that is disregarded as an entity separate from its owner for U.S. income tax purposes under Regulations sections 301.7701-2 and 301.7701-3. See the instructions for Form 8832.

A foreign-owned U.S. DE is a domestic DE that is wholly owned by a foreign person. For tax years beginning on or after January 1, 2017, and ending on or after December 13, 2017, a foreign-owned U.S. DE is treated as an entity separate from its owner and classified as a corporation for the limited purposes of the requirements under section 6038A that apply to 25% foreign-owned domestic corporations. See the final regulations at IRS.gov/irb/2017-03_IRB#TD-9796.