Glossary
Disregarded Entity (DRE)
Definition
A disregarded entity is a business entity, most often a single-member LLC, that is treated as separate from its owner for legal purposes but not for federal income tax. Its activity is generally reported as if the owner conducted it directly.
How the default rule works
Under the entity classification rules, a domestic LLC with one owner is by default disregarded unless it elects to be taxed as a corporation. Income and expenses flow to the owner, so an owner who is a nonresident generally reports them on their own return when required.
The foreign-owner exception
For Form 5472 purposes, a U.S. disregarded entity that is wholly owned by one foreign person is generally treated as a domestic corporation separate from its owner. This means it needs an EIN and must report certain transactions with its owner or related parties, even with no income.
Changing the treatment
An eligible entity can generally file Form 8832 to choose another classification, such as a corporation. That choice has wide consequences, so it should be considered before it is made.
Practical example
For example, suppose Pedro, who lives in Peru, owns a single-member U.S. LLC. It is a disregarded entity for income tax, yet it may still need to file a pro forma return with Form 5472 if he contributes money to it.
General information, not tax advice
This page provides general educational information about U.S. federal tax rules. It is not individualized tax, legal or accounting advice, and it does not create a client relationship. Results depend on each taxpayer's specific facts.
Written by Roger I. Chirino, founder of Chirino USA Accountants & Advisors P.A.
Supported by licensed CPAs, IRS Enrolled Agents (EAs), and experienced U.S. tax professionals focused on cross-border compliance and planning.
Related questions
Does a foreign-owned LLC need to file a U.S. tax return if it had no income?
Does a foreign-owned single-member LLC need an EIN?
Is my foreign company a corporation, partnership or disregarded entity for U.S. tax purposes?
Can a foreigner own a U.S. LLC without an ITIN?
Does a foreign-owned LLC with a U.S. bank account owe U.S. tax?
How do I close a foreign-owned U.S. LLC with the IRS?
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