How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lane Your Own Question

Lane
Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3706
Experience:  Providing Financial & Tax advice since 1986
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

I own a Delaware LLC and I am a sole member and it is recently

Customer Question

I own a Delaware LLC and I am a sole member and it is recently incorporated.

1.Can a Delaware LLC owned by non resident alien without ITIN be a disregarded entity?
There will be no physical presence in USA apart from the mail forwarding address and bank account.

2. I have confusing information that a Delware LLC owned by non resident aliens can't be a disregarded entity and should be elected as a C-Corp for tax purpose as I don't have ITIN.

If the first statement is true am I entitled to file the tax return or not.

If the second statement is correct should I file the f8832 to elect it as C-Corp now or at the time of filing returns. I need a detailed reply.
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Lane :

Hi,

Lane :

You say you incorporated, but are not a C-Corp ... this means you must be an S-CORP? (or are you referring to setting up an LLC)?

Lane :

If you are an LLC and only one member the LLC IS a disregarded entity

Lane :

If, however, you actually incorporated as an S-Corp, the S-Corp will have to file an 1120_s

Customer :

Everything is mentioned in my question and I think you have no expertise in this field

Lane :

Either Way, if have income, you will have to file (either as the individual that does a schedule C to report the income from his disregarded entity OR as an s-corp shareholder, by taking the K-1 form that the S-Corp must issue and transferring that to the person return as well

Lane :

NO you said INCORPORATED, but then used the word disregarded entity

Lane :

the two are mutually exclusive

Lane :

ONly sole proprietors, LLSs care disregarded entities

Lane :

See this:

Lane :

Are These Business Types Disregarded Entities?
Businesses are set up under state regulations, through the secretary of state for each state, and no state recognizes a "disregarded entity" as a business type. Look at each of the legal types of business to see how it compares to the requirements for a disregarded entity:

  • Sole proprietorship, in which you and the business are the same entity. The sole prop is taxed on Schedule C, but there is no separate business entity to provide liability protection for you if the business can't pay its bills or gets sued. A sole proprietorship isNOT a disregarded entity. (You do not register a sole proprietorship with your state; you just need a local business licenseand possibly a fictitious name/dba statement).

  • A single-member limited liability company (LLC) is a separate entity for liability purposes, registered with the state(s) where you are doing business, and the LLC taxes are figured on Schedule C. A single-member LLC IS a disregarded entity.
Lane :

You said you incorporated

Lane :

Disregarded entity DOES NOT mean that you don't have to file ... it just means that the income is reported from the individual rather than the single member LLC or the Sole proprietorship --- meaning that the ENTITY is disregarded, as a separate taxpayer

Lane :

Going back the original question ... if you mean to say that you SET UP a single member LLC and did not form a corporation (again a singlemember LLC is a hybrid between partnership and corporation) but NOT an actual corporation so you DID NOT incorporate ... then yes, the LLC WOULD BE a disregarded entity

Lane :

when you say it was recently incorporated, that implies that you have ALREADY either filed and 8832 or a 2553 to elect corporate tax treatment ... as eithe a or S, respectively

Customer :

It is not a corporation

Customer :

It is a LLC

Lane :

THen as a single member LLS it IS a disregarded entity

Lane :

sorry "LLC"

Lane :

THis DOES NOT, however, mean tat no retirn is to be file ... it just means that the LLC itself doesn't file

Customer :

Yes I know that but what about non resident aliens?

Lane :
Like Print
Taxation of Nonresident Aliens

An alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.

Who Must File

If you are any of the following, you must file a return:

  • A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. You must file even if:
    • Your income did not come from a trade or business conducted in the United States,
    • You have no income from U.S. sources, or
    • Your income is exempt from income tax.
  • However, if your only U.S. source income is wages in an amount less than the personal exemption amount (see Publication 501), you are not required to file.
  • A nonresident alien individual not engaged in a trade or business in the United States with U.S. income on which the tax liability was not satisfied by the withholding of tax at the source.
  • A representative or agent responsible for filing the return of an individual described in (1) or (2),
  • A fiduciary for a nonresident alien estate or trust, or
  • A resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax (Refer to Treas. Reg. 1.6012-3(b)).

NOTE: If you were a nonresident alien student, teacher, or trainee who was temporarily present in the United States on an "F,""J,""M," or "Q" visa, you are considered engaged in a trade or business in the United States. You must file Form 1040NR (or Form 1040NR-EZ) only if you have income that is subject to tax, such as wages, tips, scholarship and fellowship grants, dividends, etc. Refer toForeign Students and Scholars for more information.

Claiming a Refund or Benefit

You must also file an income tax return if you want to:

  • Claim a refund of overwithheld or overpaid tax, or
  • Claim the benefit of any deductions or credits. For example, if you have no U.S. business activities but have income from real property that you choose to treat as effectively connected income, you must timely file a true and accurate return to take any allowable deductions against that income.

Which Income to Report

A nonresident alien's income that is subject to U.S. income tax must generally be divided into two categories:

Effectively Connected Income, after allowable deductions, is taxed at graduated rates. These are the same rates that apply to U.S. citizens and residents. FDAP income generally consists of passive investment income; however, in theory, it could consist of almost any sort of income. FDAP income is taxed at a flat 30 percent (or lower treaty rate) and no deductions are allowed against such income. Effectively Connected Income should be reported on page one of Form 1040NR. FDAP income should be reported on page four of Form 1040NR.

Which Form to File

Nonresident aliens who are required to file an income tax return must use:

Customer :

Is it true Delware LLC owned by non resident aliens can't be a disregarded entity

Lane :

YOu, as a non-resident alien, will have ECI ... income effectively connected to a business in the US, which means that you will need to file, as outlined above

Lane :

Let me check on that one ... going to both tax code and Del bus code now .... were you given any sort of citation on that (I DO NOT know that to be trus) Have to wonder if they were just saying that you will have to file

Customer :

If I opt to file the f8832 to elect it as C-Corp immediately after forming the LLC or at the time of filing returns.

Lane :

That will simply mean that (the C-Corp) will file it's own tax form 1120, and if you want to leave the money INSIDE the corp you can ... BUT if you either take salary or dividends, we're back t your having to file as a non-re alien having ECI

Customer :

what I own is not a C corp

Lane :

if you file the 8832 it will be

Lane :

we have 2 different questons goin on here (1) can non-res alien own a disregarded entity (and I think they can ... with check that for you) and (2) the C-corp questions you just asked about

Lane :

ON the first question... YES you can own a disregarded entity (single member llc) See THIS:

Lane :

Owning the Property as an Individual or Single Member LLC (SMLLC): An SMLLC is a limited liability company with only one member, the nonresident alien for purposes of this article. The SMLLC is beneficial because it provides a layer of liability protection for the nonresident alien from lawsuits from tenants. Additionally, we generally believe it is good practice to keep the bank account and assets related to the investment property separate from personal bank accounts and assets. The single member LLC approach allows for a clean and clear separation. This approach may require a little more upfront documentation, but does not complicate tax matters, because the owner may elect to complete his income tax return in the same manner as if the LLC did not exist. Although the SMLLC keeps the individual separate from the entity for legal purposes, the SMLLC is a 'disregarded entity' for tax purposes, unless the owners elects to be treated as a corporation. As a disregarded entity, the IRS looks through to the owner of the LLC to determine tax treatment of payments of income, withholding, etc. Any income received by the LLC will be reported by the owner, on his annual individual income tax return.

Customer :

If someone owns a Delware LLC the tax is passed on to the owners but for non resident alien doesn't have SSN or ITIN(in my case)

Lane :

I see you're still typing I'll wait... :) (or if you want a response here let me know)

Customer :

so how is it possible to file the returns ? getting a ITIN is not a viable option for me

Lane :

Then you are truly stuck here ... IRS requires the filing of a return (if there is a profit), because you will have ECI (Effectively Connected Income) to a US based corp... you CAN SHOW DOCUMENTS and use form W-& without being resident

Lane :

NOW... if you have a way of getting to the money... and you are outside a place where IRS has information sharing or tax treaties... then they may neve be able to enfore

Lane :

BUT I wouldn't be doing my job if I didn't tell you that THEY (IRS) say you'll need to file, IF you have that income

Lane :

Depending on the NATURE of your business, if you are distributing or working through some other US company they MAY simply WITHHOLD taxes from the money they send you

Lane :

THIS would get it done (although you may end up paying more that way, because after filing you would probably find that a base level of that income is below taxation threshhold AND that you would be able to deduct business expenses) IF you can find a way to file W-7 and gete ITIN, you'll only have to pay tax on PROFITS

Customer :

If I opt to file the f8832 to elect it as C-Corp immediately after forming the LLC or at the time of filing returns.

Customer :

let me rephrase it

Customer :

If I opt to file the f8832 to elect it as C-Corp, should I file f8832 immediately after forming the LLC or at the time of filing returns.

Lane :

I think the effect would be the same AS long as you file the 8832 DURING the first tax year of operation (so that by year-end you have a c-Corp) ... and actually this would be before filing of returns (which would be APR of the following year if an individual - through disregarded entity - or March 15, if a corporation ... BUT let me look at the form ... juuust a second

Lane :

OK... see this, (the deadline date is not there, bit I'll get that from the instructions in a minute) ... the problem I see here is what's required on the n8832 itself ... see this:

Lane :

LLC Taxed as Corporation An LLC can also elect to pay income tax as what the IRS calls "an association taxable as a corporation." This election is made on IRS Form 8832. Here are some things you need to know about this election:

  • The form allows "eligible entities" to file this election. LLCs are specifically stated to be eligible entities.
  • The IRS uses the term "association" to mean "an eligible entity taxable as a corporation by election...."
  • The form includes a consent statement which may be signed by all members, or by one member on behalf of all members. If one member signs, there should be some record in company membership meetings that all members approved this election.
  • You must provide the name(s) and identifying number(s) of owners (Social Security Number for a single-member LLC, and Employer ID for multiple member LLC).
Lane :

That last bullet point there gets you again, doesn't it?

Lane :

Ahh, and here is the WHEN to FILE 8832 part:

Lane :

When to File
The election to be taxed as the new entity will be in effect on the date the LLC enters on line 8 of Form 8832. The election cannot take effect more than 75 days before he date the election is filed, nor can it take effect later than 12 months after the date the election is filed. There are other rules for filing this form for new businesses; check with your tax adviser for the timing of this filing.

Lane :

Have you look at the W-7 info? I'm not so sure that you cannot get an ITIN (although I don't know all of your situation) ...the w-7 would not need to be sent in until it's time to send in that first 1040NR individual tax return (which would be the situation is you go the disregarded entity route) ... and only then when there is enough profit to put you above the filing thresshold

Lane :

sorry "IF" you go the disregarded entity route...

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)

Please let me know if you have any questions as all ... I'd like to continue to work with you on this .. There SHOULD be a way to get this done.

Lane :

Let me know …

Lane

Lane :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.

HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Expert:  Lane replied 10 months ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 10 months ago.

Hi Clark,

... just checking back in, as i never saw you come back into the chat.

Let me know if you want to go further on this.

And just to get back to that original question... YES, the LLC can be a disregarded entity...

AND I think that there can be a way to the the ITIN, so you can file (once you have enough profit to NEED to file)

(but again I don't have all the information there)

Ad i DO see some issue on the 8832 as well tied to the underlying problem of needing that ITIN

Please let me know if I can help further

Lane



Customer: replied 9 months ago.
Relist: Incomplete answer.
Expert:  Anne replied 9 months ago.
Hi

Different expert here. First can you please tell me what visa you are here on.
Customer: replied 9 months ago.

Hi,


 


I am a non resident alien andI don't have any visa.

Expert:  Anne replied 9 months ago.
I'm sorry, but I'm unclear on what you mean by that.

Non Resident Aliens can be in the US on an F1 visa if they're a student, or an work visa.

Both of these (and many other visas) can, at least temporarily in some cases, make you a Non Resident Alien. However, the rules for disregarded entities is very different depending on the type of visa you are in the US on.

I'm trying to put the pieces of the puzzle together here. If you have no visa , then are you by chance an illegal immigrant?
Customer: replied 9 months ago.

I am not residing in US and I don't have any visa but I have formed a LLC in Delaware.

Expert:  Anne replied 9 months ago.
Ahhhhhhhhhh NOW I understand (I did not read much of the other's expert's answer....I like to start fresh, ask the questions I feel I need to without any bias or being "bogged down" (for lack of a better term) by another expert's answer, whether good or bad. Trying to read (let alone find) the answer to these questions gets confusing as I would be constantly be going back and forth....easy to lose your train of thought that way.

Unfortunately for you, that means that I will probably ask questions that you may have already answered with the first expert. I hope that you won't mind this.

Please tell me what type of business you have set up. (Are you doing internet counseling, selling merchandise , what ever the reason was for you to start the business)
Customer: replied 9 months ago.

Though the type of business is really doesn't matter here I am including the answers for your questions.


Incorporating in Delaware is easier and has various advantages.


Being a US company it will be lot more easier to get a merchant account and US paypal account which has lower fee and it can be enrolled to BBB.


 


Business is Web Designing( internet based)

Expert:  Anne replied 9 months ago.
Thank you for those answers. Not everyone I speak with here is as knowledgeable about Delaware LLC's as you are.

Knowing that (hopefully) keeps me from telling you things you already know.

Since we have treaties with many countries, it would be helpful to know what country you are from
Customer: replied 9 months ago.

These are not relevant to my questions. I have thoroughly researched other factors before forming the LLC.

Expert:  Anne replied 9 months ago.
Ok....

Since you are single member LLC, and you are a foreign person for US tax purposes, then the income earned is treated as earned directly by the foreign person. Such income is not subject to U.S. taxation so long as the foreign person did not perform his services or sales activity in the U.S. himself or thru an employee or agent.


So you obviously do NOT need an ITIN

I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.

 

Expert:  Lane replied 9 months ago.

You'll notice that the previous expert said "Since you are single member LLC, and you are a foreign person for US tax purposes, then the income earned is treated as earned directly by the foreign person. Such income is not subject to U.S. taxation so long as the foreign person did not perform his services or sales activity in the U.S. himself or thru an employee or agent."

I agree with that, but in our previous conversations you said you would be doing some US business, (having US source income.

If that is the case, then you will need the ITIN and as we have been discussing, need to file an American tax return.

If, however, you will have no effectively connected income, then you would have no need to file ... At least no need to file for that reason.

Lane


JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.