Can an LLC owned by another LLC be a disregarded entity for tax filing purposes?
I'm trying to figure out a tax structure question for our business setup. We have a partnership (based in England with British owners) that owns 100% of an LLC here in the US. What I'm confused about is whether we need to file separate tax returns for both entities, or if the wholly-owned LLC can be treated as a disregarded entity with all the earnings and deductions just passing through to our partnership. I'm not super familiar with how the international aspect might complicate things. Does anyone know if having foreign owners changes the ability to treat the US-based LLC as a disregarded entity? The LLC was formed about 8 months ago and we're trying to get our tax structure figured out before we have to file next year.
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Anastasia Smirnova
Yes, an LLC that's 100% owned by another entity can generally be treated as a disregarded entity, but the international element adds some complexity here. When a single-member LLC is owned by a foreign partnership, it can technically be treated as a disregarded entity for US federal tax purposes. However, the foreign partnership itself would be considered engaged in US business through that disregarded LLC, which means the foreign partnership would need to file a US partnership return (Form 1065) and potentially pay US taxes on income effectively connected with a US trade or business. There's also the issue of withholding requirements that apply to foreign-owned entities with US income. Even with the disregarded entity election, there are specific reporting requirements you'll need to address.
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Sean O'Brien
But wait, doesn't this depend on how the original partnership is classified for US tax purposes? Like if they're treated as a corporation under US rules even though they're a partnership in the UK, wouldn't that change things?
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Anastasia Smirnova
You're asking a good question about entity classification. The default classification for a foreign partnership is generally still a partnership for US tax purposes, unless they've made an election on Form 8832 to be treated differently. If the foreign partnership has elected to be treated as a corporation for US tax purposes, that would indeed change things. In that case, the US LLC would be treated as a disregarded entity owned by a foreign corporation, which comes with different filing requirements including potentially Form 5472 and Form 1120-F.
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Zara Shah
Just wanted to share my experience here. I had a somewhat similar setup and was completely lost with all the filing requirements. After hours of trying to figure it out and getting nowhere, I used this AI-powered tax service called taxr.ai that helped make sense of everything. You just upload documents or explain your situation and it explains exactly what forms you need and why. For my foreign-owned LLC structure, it identified some specific reporting requirements I had no idea about, including that Form 8858 for disregarded entities. Might be worth checking out at https://taxr.ai if you're still confused about how to properly structure everything. It saved me a ton of research time and probably some penalties too!
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Luca Bianchi
How accurate is this service with international tax situations? I've tried other online tax tools before and they usually fall apart with anything involving foreign entities.
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GalacticGuardian
Does it actually tell you how to make the election to be a disregarded entity? Or just explain the theory behind it? I need step-by-step guidance.
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Zara Shah
It's surprisingly good with international situations - that's actually where it seems to shine compared to other tools. It specifically identified the forms needed for foreign-owned disregarded entities and explained the withholding requirements that applied in my case. It provides both the theory and practical steps. For the disregarded entity election, it explained that no actual election is needed for single-member LLCs (they're automatically disregarded by default) but it does outline the specific reporting requirements and how to document the status on your returns.
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GalacticGuardian
I finally tried taxr.ai after seeing it mentioned here. I was super skeptical at first because my situation with a UK-based parent company owning a US LLC seemed too complex for an automated service. But I was impressed! It immediately identified that my single-member LLC was automatically disregarded (no election needed) but flagged that I still needed to file Form 8858 (Information Return for disregarded entities) and explained the withholding tax considerations. It even caught that we needed to get an EIN for the disregarded entity even though it doesn't file separate returns. Definitely worth checking out if you're dealing with this kind of structure.
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Nia Harris
If you're having trouble getting definitive answers about your tax situation, you might want to try Claimyr. I was in a similar position with an international business structure and really needed to speak directly with the IRS. After spending days trying to get through on my own and just getting disconnected, I used https://claimyr.com to get me in the IRS phone queue and they called me when an agent was ready. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c Their service bypasses the endless hold times and I actually got to speak with an IRS international tax specialist who confirmed exactly how my foreign-owned LLC needed to be reported. Sometimes you just need to hear it directly from the source to be 100% confident.
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Mateo Gonzalez
How does this even work? I thought the IRS phone system was basically impossible to navigate. What's the catch?
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Aisha Ali
Yeah right. You expect me to believe some random service can get through to the IRS when literally no one else can? I've tried calling them like 10 times about my foreign corporation issues and can never get through. Sounds too good to be true.
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Nia Harris
There's no special magic to it - they use a technology that keeps dialing and navigating the IRS phone tree until there's an opening, then they call you when they've secured a spot in line. It's basically doing what you'd do manually but with automation. It definitely works - it's just handling the frustrating part of the process for you. I was skeptical too! I'd spent over 4 hours across 3 days trying to get through about my foreign entity questions. Claimyr had me talking to someone in about 45 minutes (while I did other work). The IRS agent I spoke with was able to confirm exactly what forms were needed for my foreign-owned LLC structure, which gave me way more confidence than just reading conflicting info online.
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Aisha Ali
I need to eat my words. After seeing Claimyr mentioned here, I decided to give it a shot as a last resort for my foreign entity tax questions. I had wasted so much time trying to reach the IRS directly with no luck. Using Claimyr, I got a call back in about an hour and spoke with an IRS agent who specialized in international business structures. He confirmed that our UK-owned LLC could indeed be treated as a disregarded entity, but walked me through the specific forms needed (8858, 5472, and W-8BEN-E) and withholding requirements that still applied. Honestly shocked this service actually worked after all my failed attempts to get through on my own!
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Ethan Moore
There's one important thing nobody's mentioned yet - if the UK partnership is treated as a partnership for US tax purposes and the LLC is disregarded, the foreign partners might need to file individual US tax returns (1040-NR) if they're considered engaged in US trade or business through the disregarded LLC. Plus, the partnership itself needs to withhold tax on the foreign partners' share of effectively connected income (ECI). Don't overlook this part!
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Diego Chavez
AuthorDoes this mean we'll need to get individual tax ID numbers (ITINs) for each partner in the UK company? We have 5 partners total.
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Ethan Moore
Yes, each foreign partner would need either an ITIN or EIN (depending on whether they're individuals or entities) if they're required to file US returns. This is necessary for both the withholding requirements and for filing their individual 1040-NR forms if required. This is actually one of the more complicated aspects of your structure. The disregarded LLC creates "tax nexus" for the foreign partnership and, by extension, its partners. The partnership may need to withhold tax on each foreign partner's share of effectively connected income using Form 8805.
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Yuki Nakamura
Just to add another option - have you considered checking if your situation qualifies for relief under the US-UK tax treaty? Depending on your specific activities, you might be able to claim treaty benefits that could eliminate some filing requirements or reduce taxes. The concepts of "permanent establishment" in the treaty could be relevant here.
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StarSurfer
The tax treaty won't eliminate the filing requirements though, right? You'd still need to file returns to claim the treaty benefits in the first place?
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Aisha Rahman
You're absolutely right - the treaty benefits don't eliminate filing requirements, they just potentially reduce the tax liability. You'd still need to file Form 1065 for the partnership and the individual 1040-NR forms for each partner to actually claim those treaty benefits. The treaty might help reduce withholding rates on certain types of income, but all the reporting obligations remain the same.
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