limited-liability-company tax-law federal-tax-law partnership
Tax requirements for LLC taxed as partnership all foreign members and non us sourced income
<p>I was wondering which will be the forms required to be filled by a Wyoming LLC taxed as partnership, which it's revenue is not US sourced, so no withholding will apply and also all of it's members are foreign members.</p>
<p>I'll understand Form 1065 is still aplicable but schedule K-1 will not, so, just form 1065?</p>
<p>I'll appreciatte further information about this and any correction if needed.</p>
<p>Thanks beforehand</p>

<p>While an entity taxed as a corporation that is organized under U.S. law must file a tax return on IRS Form 1120 or the appropriate alternative form that applies to some specialized kinds of corporations (e.g life insurance companies), in every tax year, whether or not it has taxable income, the same rule does not apply to entities taxed as partnerships.</p>
<p>An entity taxed as a partnership on <a href="https://www.irs.gov/instructions/i1065#en_US_2021_publink11392vd0e545" rel="nofollow noreferrer">IRS Form 1065</a> only when it reports information with U.S. income tax consequences. Hence:</p>
<blockquote>
<p><strong>Except as provided below, every domestic partnership must file Form</strong>
<strong>1065, unless it neither receives income nor incurs any expenditures</strong>
<strong>treated as deductions or credits for federal income tax purposes</strong>.</p>
<p>Note. To be certified as a qualified opportunity fund (QOF), the
partnership must file Form 1065 and attach Form 8996, Qualified
Opportunity Fund, even if the partnership had no income or expenses to
report. See Schedule B, question 25, and the Instructions for Form
8996.</p>
<p><strong>Entities formed as LLCs that are classified as partnerships for</strong>
<strong>federal income tax purposes have the same filing requirements as</strong>
<strong>domestic partnerships.</strong></p>
<p>A religious or apostolic organization exempt from income tax under
section 501(d) must file Form 1065 to report its taxable income, which
must be allocated to its members as a dividend, whether distributed or
not. Such an organization must figure its taxable income on an
attached statement to Form 1065 in the same manner as a corporation.
The organization may use Form 1120, U.S. Corporation Income Tax
Return, for this purpose. Enter the organization's taxable income, if
any, on line 6a of Schedule K and each member's distributive share in
box 6a of Schedule K-1. Net operating losses aren't deductible by the
members but may be carried back or forward by the organization under
the rules of section 172. The religious or apostolic organization must
also make its annual information return available for public
inspection. For this purpose, “annual information return” includes an
exact copy of Form 1065 and all accompanying schedules and attached
statements, except Schedules K-1. For more details, see Regulations
section 301.6104(d)-1.</p>
<p>A qualifying syndicate, pool, joint venture, or similar organization
may elect under section 761(a) not to be treated as a partnership for
federal income tax purposes and will not be required to file Form 1065
except for the year of election. For details, see section 761(a) and
Regulations section 1.761-2.</p>
<p>Real estate mortgage investment conduits (REMICs) must file Form 1066,
U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax
Return.</p>
<p>Certain publicly traded partnerships (PTPs) treated as corporations
under section 7704 must file Form 1120.</p>
</blockquote>
<p>The entity described in the question is not qualified to be a qualified opportunity fund since it must have almost completely U.S. source income to qualify.</p>
<p>In the fact pattern in the question, it appears that the entity has no taxable income and no expenditures that could give rise to income tax deductions under the U.S. tax code, so it need not file an IRS Form 1065.</p>
<p>Note also that since it is an LLC organized under Wyoming law, it does not have to file <a href="https://www.irs.gov/pub/irs-pdf/f8832.pdf" rel="nofollow noreferrer">IRS Form 8832</a> to be classified as a partnership for U.S. tax purposes since it is a domestic entity, even though it has all foreign owners, although there would be no harm in doing so anyway for clarity's sake or in case there is a future change in the law.</p>
<p>Similarly, for purposes of filing requirements for Form 1065 it is governed by the rules for domestic partnerships rather than for foreign partnerships, even though by saying that is members are &quot;foreign members&quot; this means that all of its members are not U.S. residents, nationals, or citizens.</p>
<p>Also a <a href="https://www.investopedia.com/articles/tax/11/tax-tips-for-non-residents.asp" rel="nofollow noreferrer">person residing in the U.S.</a>, for example, is not a &quot;foreign member&quot; and is subject to U.S. income taxation on their non-U.S. source income, even though the person is not a U.S. citizen.</p>
<p>But, in any year in which the partnership does have either U.S. income taxable income, or expenditures with U.S. income tax effects, it is required to file both IRS Form 1065 and K-1s to all partners to whom taxable income or taxable losses have been allocated. And, under U.S. tax law, a partnership must allocate all of its taxable income and all of its expenditures with U.S. income tax effects to some partner in the partnership in a manner consistent with U.S. partnership tax laws and regulations (which basically means that the allocation must have &quot;substantial economic effect&quot;).</p>
<p>Notwithstanding this fact, <a href="https://www.irs.gov/businesses/small-businesses-self-employed/llc-filing-as-a-corporation-or-partnership" rel="nofollow noreferrer">for purposes of federal employment taxes and certain federal excise taxes</a>, an LLC with an employee subject to U.S. employment taxes, or that owes federal excise taxes (e.g. because it has a U.S. firearm dealer's license in force upon which an annual excise tax is due even if it has no firearm sales in a given year) must still file the tax returns associated with these federal taxes.</p>
<p>Whether it has to file a state tax return is a question of Wyoming tax law. Wyoming does not have a generally applicable state income tax, but it does have other state taxes and fees that could conceivable apply in some circumstances, such as its annual LLC registration fee.</p>
<p>If the LLC had instead been organized under the law of a foreign country, for example, as a GmbH under German law, which is an &quot;eligible entity&quot; that can elect to be taxed as a partnership under U.S. income tax law, it would instead be a foreign partnership and <a href="https://www.irs.gov/instructions/i1065#en_US_2021_publink11392vd0e545" rel="nofollow noreferrer">subject to the following filing requirements</a>:</p>
<blockquote>
<p>Generally, a foreign partnership that has gross income effectively
connected with the conduct of a trade or business within the United
States (ECI) or has gross income derived from sources in the United
States (U.S. source income) must file Form 1065, even if its principal
place of business is outside the United States or all its members are
foreign persons. A foreign partnership required to file a return must
generally report all of its foreign and U.S. partnership items.</p>
<p>A foreign partnership with U.S. source income isn't required to file
Form 1065 if it qualifies for either of the following two exceptions.</p>
<p><em>Exception for foreign partnerships with U.S. partners.</em> A return isn't required if:</p>
<p>The partnership had no effectively connected income (ECI) during its
tax year;</p>
<p>The partnership had U.S. source income of $20,000 or less during its
tax year;</p>
<p>Less than 1% of any partnership item of income, gain, loss, deduction,
or credit was allocable in the aggregate to direct U.S. partners at
any time during its tax year; and</p>
<p>The partnership isn't a withholding foreign partnership as defined in
Regulations section 1.1441-5(c)(2)(i).</p>
<p><em>Exception for foreign partnerships with no U.S. partners</em>. A return isn't required if:</p>
<p>The partnership had no ECI during its tax year,</p>
<p>The partnership had no U.S. partners at any time during its tax year,</p>
<p>All required Forms 1042 and 1042-S were filed by the partnership or
another withholding agent as required by Regulations section
1.1461-1(b) and (c),</p>
<p>The tax liability of each partner for amounts reportable under
Regulations section 1.1461-1(b) and (c) has been fully satisfied by
the withholding of tax at the source, and</p>
<p>The partnership isn't a withholding foreign partnership as defined in
Regulations section 1.1441-5(c)(2)(i).</p>
<p>A foreign partnership filing Form 1065 solely to make an election
(such as an election to amortize organization expenses) need only
provide its name, address, and employer identification number (EIN) on
page 1 of the form and attach a statement citing “Regulations section
1.6031(a)-1(b)(5)” and identifying the election being made. A foreign partnership filing Form 1065 solely to make an election must obtain an
EIN if it doesn't already have one.</p>
</blockquote>
