US LLC no ties to the US - can you get taxed by the IRS

[Roo]

Hi,

I spoke to an incorporation agent recently and he recommended me to stay away from US LLC (non-resident, no ties to the US) because:

1. The IRS is an absolute nightmare to deal with and even though I shouldn't pay US tax it will really depend on who from the IRS looks at the stuff I filed and his mood that day and it's very hard to fight their decision which would be based on having the money in a US bank or even EMI (Mercury/Wise/etc).
I've never read about anything like that so I'd like to know if that's complete crap and he wanted to sell me some other more expensive incorporation or it can actually happen.

2. He said that filing will be expensive unless I do it myself and it's risky to submit something wrong to the IRS. He said a CPA will charge no less 1500$-2000$ to file the two forms for a simple non-resident LLC.
This doesn't seem true either since I saw startfleet.io for instance offering filing for about 400$. Can anyone provide some more details on this please?

 

[JackAlabama]

Hi,

I spoke to an incorporation agent recently and he recommended me to stay away from US LLC (non-resident, no ties to the US) because:

1. The IRS is an absolute nightmare to deal with and even though I shouldn't pay US tax it will really depend on who from the IRS looks at the stuff I filed and his mood that day and it's very hard to fight their decision which would be based on having the money in a US bank or even EMI (Mercury/Wise/etc).
I've never read about anything like that so I'd like to know if that's complete crap and he wanted to sell me some other more expensive incorporation or it can actually happen.

2. He said that filing will be expensive unless I do it myself and it's risky to submit something wrong to the IRS. He said a CPA will charge no less 1500$-2000$ to file the two forms for a simple non-resident LLC.
This doesn't seem true either since I saw startfleet.io for instance offering filing for about 400$. Can anyone provide some more details on this please?

your agent wanna take you for a ride.

 

[Sols]

I wouldn't call the IRS difficult. The opposite is true. The IRS is easy because it's such a predictable tax authority. I think some people use the word difficult when words like aggressive, competent, and powerful are more accurate.

LLCs with no US connections and US ties are not on the IRS' radar. That's good. I don't believe it's been explicitly stated anywhere that they are for sure not in scope for any US tax ever, though.

LLCs that violate US federal tax law risk having the tax enforcement equivalent of an aircraft carrier sent after them. That's a difficult situation to be in, so it's best not to.

The required filing is quite easy to DIY if you already to some basic accounting. But if you need help, you can shop around and different CPAs will have different fees. I've heard of as low as just a few hundred.

 

[Roo]

@Sols regarding tax, definitely not looking to violate any tax laws, my concern was that although everywhere it's said non-resident US LLC with no US business or presence are not taxed by the US the agent tried to convince me that it's really random based on whoever from the IRS will look at your forms and they may decide to pick on you and want to tax you (relating things to remittance if you have a US bank account) although the law says you shouldn't be taxed in that situation. It seemed a bit off that things could be so random (it's the US not a banana republic) and people not complain about them.

 

[Sols]

Even if your filings get flagged for manual review (which is already highly unlikely), there is a near zero risk that someone at the IRS does anything other than look at it and file it away.

But let's say they decide to audit you. That's when your friend called Doing Basic Accounting is going to save your hide. When you simply export the latest management accounts from your accounting software and attach last year's financial statements and some bank statements and invoices/agreements, the IRS will see there is nothing in scope for them.

 

[12345]

You could find somebody on fiverr that could do the accounting for you at 300-400usd monthly but I don't know if these people from India or Pakistan are reliable

 

[Cloudbanck]

2. He said that filing will be expensive unless I do it myself and it's risky to submit something wrong to the IRS. He said a CPA will charge no less 1500$-2000$ to file the two forms for a simple non-resident LLC.
This doesn't seem true either since I saw startfleet.io for instance offering filing for about 400$. Can anyone provide some more details on this please?

On point 2. that's indeed not true. Normal cost is 300 USD to 400 USD and that's for a US based service (not fiverr). I paid 300 USD the first year, and since then I have been doing it myself, there are a few non obvious fields, but overall not so difficult, and there is plenty of material and courses online for it.
Basically the IRS wants to know where you are a tax resident, where the LLC is registered, what type of activities the LLC does, and how much money you put in and took out of the LLC over the year. Notably full PnL and Cashflow statements are not required.

And you are better off knowing this stuff yourself than relying on a third party anyway. You care more about your forms than any third party ever will, and third parties can and do make mistakes, and it's good to have the skills to spot them.

But then, non resident US LLC are not really prioritised by the IRS, as they are not paying any tax, so Id say the risk of audit and the IRS checking details in the 1120 + 5472 forms is pretty low.

 

[Roo]

I checked form 5472 and I see it asks for a few things:

• FTIN, if any (see instructions)
• Country(ies) under whose laws the ultimate indirect 25% foreign shareholder files an income tax return as a resident
• Country(ies) under whose laws the related party files an income tax return as a resident
• Country(ies) under whose laws the reporting corporation files an income tax return as a resident

Does this mean that I would have to provide a tax ID from the country of residence and could be asked for tax returns from the country I specify?
If running the LLC from a country with territorial taxation not sure how I would provide any of those, wasn't planning to get tax ids and file foreign stuff at the moment?

 

[Cloudbanck]

I checked form 5472 and I see it asks for a few things:

• FTIN, if any (see instructions)
• Country(ies) under whose laws the ultimate indirect 25% foreign shareholder files an income tax return as a resident
• Country(ies) under whose laws the related party files an income tax return as a resident
• Country(ies) under whose laws the reporting corporation files an income tax return as a resident

Does this mean that I would have to provide a tax ID from the country of residence

Yes, if the country of residence issues tax ids. And then there are edge cases like the UAE that doesnt issue personal tax ids, but people generally fill in their emirates id number, and US and other authorities seem to accept it.

and could be asked for tax returns from the country I specify?

Highly unlikely, it is unusual the IRS asks for anything from a non resident LLC, but if they do, it would be related to accounts and distributions/contributions of the LLC, not personal tax returns in a foreign country. If one looks at actual cases, it would be when the IRS suspects you are actually running the business from the US, and it is a business of significant size. So that's the thing to watch out for, time spent in the US, and having an office employees/dependent agents in the US.

In which foreign country you are - the US cares less about that. For instance for the W-8BEN form, it is explicitly stated that one doesnt need to file a new one if one moves from one foreign country to another.

 

[JohnLocke]

This doesn't seem true either since I saw startfleet.io for instance offering filing for about 400$.

They have been around for a long time with almost no complaints from what I have seen. You may consult them to get a better picture of your setup if a US LLC is what you want to proceed with.

 

[Roo]

Thanks for all the information, I will contact startfleet.