Reporting Requirements w/ Foreign Company

[miatax]

Hi:

I have a client who has an LLC created in 2006. It has not had any activity and has not filed any tax returns. The LLC has 2 managing members: 1 is a U.S. resident and the other is a foreign Italian company. The LLC plans to purchase rental real estate this year. The funds will be provided by the Italian company.

When the purchase takes place and when the LLC starts producing income, what are the reporting AND tax requirements the LLC needs to meet regarding the foreign company? Is there anything in particular I need to be aware of when filing the first (2009) tax return? I have never done any tax returns with foreign members / partners.

Please let me know if there are any other questions I should ask my client.

Thank you.

[JohnH]

I don't recall all the details, but a couple of years back I was asked by an existing tax client to help with their tax filing for a business with a foreign presence. When I read up on the requirements for filing the FBAR for a business, I bowed out simply because I didn't want to be asssociated with anything carrying those types of penalties. In my case the business was a corp, but with an LLC you might have even more exposure, especially if it chooses partnership treatment.

[kcjenkins]

Has the LLC filed it's franchise tax reports? If not, it may not even be legal now. I'd suggest you check with the Sec of State's office to find out the status of the LLC. And do that BEFORE they start buying property. Other than that, until it has some activity, it's not normally under any tax requirement to file, unless it's elected to be taxed as a corp. As a corp, it would be required to file every year, even if no activity at all.

As for the other issues, I'd advise a legal opinion before you take any responsibility at all.

[miatax]

KC:

I am not sure what you mean by franchise tax reports. Do you mean the annual filing report with the state? If that is the case, then yes. I did check and it is an active LLC renewed every year since 2006. It just has not filed any tax returns.

My question is if in 2009 it buys and rents property, do I just begin with a 2009 tax return? It has 2 managers - a U.S. resident and a Foreign Company.

[miatax]

Help please.. I'm meeting with client this afternoon and I'm not sure what to say other than he must consult an attorney, but I would like to know what has to be done at least from a tax perspective.

[kcjenkins]

Yes, once it has business activity, it starts filing. LLCs do not have to file until they have activity, under federal tax code. States may vary on this.