Form 1120 Schedule B Instructions Form 1120 Schedule B Instructions: Fill & Download for Free

If you have a single-member LLC formed in the US (including Delaware), the LLC existed during 2017, and this single-member is a non-US resident, then yes, dissolving/cancelling the LLC is a “reportable transaction” that must be reported on Form 5472. The due date was April 18, 2018, unless your LLC had a reason to have a fiscal year that did not match the calendar year.New Requirement from changed IRS regulations regarding Foreign-Owned US Disregarded EntitiesUnder new regulations issued in 2016, a domestic disregarded entity (including single-member LLCs) which is wholly owned by a foreign person is now treated as a US corporation solely for the purposes of Section 6038A of the Internal Revenue Code (IRC). No new income tax or income tax reporting obligations were created.According to the new regulations:A FOUSDE (Foreign-Owned US Disregarded Entity) must obtain a federal Employer Identification Number, also known as an EIN or federal tax number.A FOUSDE must keep books and records as required under IRC Section 6001. These books and records must be sufficient to establish the correctness of the reporting FOUSDE’s return, including information or records that might be relevant to determine the correct treatment of transactions with related parties.To facilitate entities’ compliance with the requirements of section 6038A, including the obligation of reporting corporations to file Form 5472, the final regulations provide that these entities have the same US taxable year as their foreign owner if the foreign owner has a U.S. return filing obligation. If the foreign owner has no U.S. return filing obligation, then for ease of tax administration, the final regulations provide that the taxable year of these entities is the calendar year unless otherwise provided in forms, instructions, or published guidance.If there were any “reportable transactions” with a foreign or domestic related party, the FOUSDE must file Form 5472 by the due date of a corporate return. Unless the FOUSDE has income effectively connected with the US, its due date would be three and half months after the beginning of the new calendar year, or April 15.In order to complete 5472, a Form 1120 must be submitted. The only information required to be on the Form 1120 is the name and address of the FOUSDE and Items B and E on the first page, plus “Foreign-owned U.S. DE” should be written across the top of the Form 1120 with Form 5472 attached.The fully completed Form 5472 gets attached to the pro-forma Form 1120, and can be filed by either faxing them to +1(855)887-7737, or by mail/courier to Internal Revenue Service, 201 West Rivercenter Blvd, PIN Unit, Stop 97, Covington, KY 41011.When: For FOUSDEs created or existing during 2017, the due date is April 16, 2018. Due date can be extended six months by filing Form 8007. See special instructions below regarding the filing of an extension.Who: Any single-member LLC or other disregarded entity formed in the US which had “reportable transactions" whose owner is not a US person.A reportable transaction is:Any type of transaction listed in Part IV of Form 5472 (e.g., sales, rents, etc.) for which monetary consideration (including U.S. and foreign currency) was the sole consideration paid or received during the reporting corporation’s tax year, or any transaction or group of transactions listed in Part IV, if:1. Any part of the consideration paid or received was not monetary consideration, or2. Less than full consideration was paid or received. Transactions with a U.S. related party, however, are not required to be specifically identified in Parts IV and VI.What else is needed:All FOUSDEs need to have a US federal tax number, known as a Federal Employer Identification NumberThe single member will need to have a US ITIN, file an application for an ITIN along with the 1120 and 5472, or if it is an entity, obtain an EINAll FOUSDEs will need to maintain books and records sufficient to document the reported transactions, and must maintain those records for at least 6 years.Penalties for failure to file Form 5472A penalty of $10,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3.Note. Filing a substantially incomplete Form 5472 constitutes a failure to file Form 5472.Each member of a group of corporations filing a consolidated information return is a separate reporting corporation subject to a separate $10,000 penalty and each member is jointly and severally liable.If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $10,000 will apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period ends.Criminal penalties under Internal Revenue Code Sections 7203, 7206, and 7207 may also apply for failure to submit information or for filingIRS Examples of the new regulationThe following examples illustrate the application of paragraph (b)(3) of this section:Example 1. (i) In year 1, W, a foreign corporation, forms and contributes assets to X, a domestic limited liability company that does not elect to be treated as a corporation under § 301.7701–3(c) of this chapter. In year 2, W contributes funds to X. In year 3, X makes a payment to W. In year 4, X, in liquidation, distributes its assets to W. (ii) In accordance with § 301.7701–3(b)(1)(ii) of this chapter, X is disregarded as a entity separate from W. In accordance with § 301.7701–2(c)(2)(vi) of this chapter, X is treated as an entity separate from W and classified as a domestic corporation for purposes of section 6038A. In accordance with paragraphs (a)(2) and (b)(3) of this section, each of the transactions in years 1 through 4 is a reportable transaction with respect to X. Therefore, X has a section 6038A reporting and record maintenance requirement for each of those years.Example 2. (i) The facts are the same as in Example 1 of this paragraph (b)(9) except that, in year 1, W also forms and contributes assets to Y, another domestic limited liability company that does not elect to be treated as a corporation under § 301.7701–3(c) of this chapter. In year 1, X and Y form and contribute assets to Z, another domestic limited liability company that does not elect to be treated as a corporation under § 301.7701–3(c) of this chapter. In year 2, X transfers funds to Z. In year 3, Z makes a payment to Y. In year 4, Z distributes its assets to X and Y in liquidation. (ii) In accordance with §301.7701–3(b)(1)(ii) of this chapter, Y and Z are disregarded as entities separate from each other, W, and X. In accordance with § 301.7701–2(c)(2)(vi) of this chapter, Y, Z and X are treated as entities separate from each other and W, and are classified as domestic corporations for purposes of section 6038A. In accordance with paragraph (b)(3) of this section, each of the transactions in years 1 through 4 involving Z is a reportable transaction with respect to Z. Similarly, W’s contribution to Y and Y’s contribution to Z in year 1, the payment to Y in year 3, and the distribution to Y in year 4 are reportable transactions with respect to Y. Moreover, X’s contribution to Z in Year 1, X’s funds transfer to Z in year 2, and the distribution to X in year 4 are reportable transactions with respect to X. Therefore, Z has a section 6038A reporting and record maintenance requirement for years 1 through 4; Y has a section 6038A reporting and record maintenance requirement for years 1, 3, and 4; and X has a section 6038A reporting and record maintenance requirement in years 1, 2, and 4 in addition to its section 6038A reporting and record maintenance described in Example 1 of this paragraph (b)(9).DefinitionsDisregarded Entity (DE)Usually an LLC. This is a legal entity that has a single owner, and the single owner is considered the taxpayer, not the entity. Under IRS regulations, when a new LLC with just one member is formed in the US, by default it is considered to be a disregarded entity.Foreign-owned U.S. DE (FOUSDE)A foreign-owned U.S. DE is a domestic DE that is wholly owned by a foreign person.For tax years beginning on or after January 1, 2017, and ending on or after December 13, 2017, a foreign-owned U.S. DE is treated as an entity separate from its owner and classified as a corporation forthe limited purposes of the requirements under section 6038A that apply to 25 percent foreign-owned domestic corporations.Responsible PersonWhen a person applies for a US federal tax number, known officially as an Employer Identification Number or EIN, they use form SS-4. This form must be signed by a Responsible Person. The IRS definition of this responsible person is, “'The ‘responsible party’ is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. The person identified as the responsible party should have a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the person, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.' [IRS emphasis]In the past, the IRS usually interpreted this to mean a Member, and the confirmation letter addressed to a single-member LLC obtaining a new tax number will be addressed to "[person's name] Sole Member"If the responsible person is no longer with the entity, or otherwise no longer fits the description, then the entity must file Form 8822-B to inform the IRS of the new responsible person.Foreign personA foreign person is:An individual who is not a citizen or resident of the United States,An individual who is a citizen or resident of a U.S. possession who is not otherwise a citizen or resident of the United States,Any partnership, association, company, or corporation that is not created or organized in the United States,Any foreign estate or foreign trust described in section 7701(a)(31), orAny foreign government (or agency or instrumentality thereof) to the extent that the foreign government is engaged in the conduct of a commercial activity as defined in section 892.However, the term “foreign person” does not include any foreign person who consents to the filing of a joint income tax return.Reportable transactionA reportable transaction is:Any type of transaction listed below (e.g., sales, rents, etc.) for which monetary consideration (including U.S. and foreign currency) was the sole consideration paid or received during the reporting FOUSDE’s tax year, orAny transaction or group of transactions listed below, if:1. Any part of the consideration paid or received was not monetary consideration, or2. Less than full consideration was paid or received.Sales or purchases of Inventory or tangible propertyCost sharing transaction payments paid or receivedRents received or paidRoyalties received or paidPurchases, leases, licenses, etc of intangible property rights (e.g., patents, trademarks, secret formulas)Consideration received or paid for technical, managerial, engineering, construction, scientific, or like servicesCommissions paid or receivedAmounts borrowed or loanedInterest received or paidPremiums received or paid for insurance or reinsuranceOther amounts paid or received that would be included on a Federal income tax returnIn addition, as a FOUSDE, Reportable Transactions further include amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity, including contributions to and distributions from the entity.The reporting FOUSDE must attach a schedule describing each reportable transaction, or group of reportable transactions. The description must include sufficient information so that the nature and approximate monetary value of the transaction or group of transactions can be determined. The schedule should include:1. A description of all property (including monetary consideration), rights, or obligations transferred from the reporting corporation to the foreign related party and from the foreign related party to the reporting corporation;2. A description of all services performed by the reporting corporation for the foreign related party and by the foreign related party for the reporting corporation; and3. A reasonable estimate of the fair market value of all properties and services exchanged, if possible, or some other reasonable indicator of value.If the entire consideration received for any transaction includes both tangible and intangible property and the consideration paid is solely monetary consideration, report the transaction in Part IV instead of Part VI if the intangible property was related and incidental to the transfer of the tangible property (e.g., a right to warranty services).Direct 25% foreign shareholderA foreign person is a direct 25% foreign shareholder if it owns directly at least 25% of the stock of the reporting corporation by vote or value. Since a single member owns 100% of the stock of the LLC, and 100% is greater than 25%, then if the single member is a foreign person this applies.Ultimate indirect 25% foreign shareholderAn ultimate indirect 25% foreign shareholder is a 25% foreign shareholder whose ownership of stock of the reporting corporation is not attributed (under the principles of section 958(a)(1) and (2)) to any other 25% foreign shareholder. See Rev. Proc. 91-55, 1991-2 C.B. 784.Related party.A related party is:Any direct or indirect 25% foreign shareholder of the reporting corporation,Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation,Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to a 25% foreign shareholder of the reporting corporation, orAny other person who is related to the reporting corporation within the meaning of section 482 and the related regulations.“Related party” does not include any corporation filing a consolidated Federal income tax return with the reporting corporation.The rules in section 318 apply to the definition of related party with the modifications listed under the definition of 25% foreign shareholder, above.Who This Applies ToDisregarded entities (usually limited liability companies/LLCs) formed under the laws of one of the states of the United States, which were formed during or before 2017, and whose single member is considered to be a “foreign person,” must file Form 5472 if they have had a Reportable Transaction during 2017.Extension of Time to file by foreign-owned U.S. Disregarded EntityA foreign-owned U.S. disregarded entity (DE) required to file Form 5472 can request an extension of time to file by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. The DE must file Form 7004 by the regular due date of the return. Because the Form 5472 of a DE must be attached to a pro forma Form 1120, the code for Form 1120 should be entered on Form 7004, Part I, line 1. "Foreign-owned U.S. DE" should be written across the top of Form 7004. For further general information, see the Instructions for Form 7004.The DE should send Form 7004 to:Internal Revenue Service201 West Rivercenter Blvd.PIN Unit, Stop 97Covington, KY 41011Or, the DE can fax (300 DPI or higher) the form to (855) 887-7737.Caution: For these entities, do not use the regular filing address listed in the Instructions for Form 7004.Further ReadingFrom the source: The IRSGeneral Information Links about Form 5472Form 5472Form 5472 InstructionsForm 5472 Flow chartPlease be sure to read the above definitions BEFORE trying to understand the chart.

If your startup was incorporated in Delaware (as most startups are), you must pay the Delaware Franchise Tax every February, regardless of whether or not you generated revenue. Here are some FAQs about the Delaware Franchise Tax:What is the Delaware Franchise Tax?If you are a venture-backed startup, you most likely incorporated as a Delaware C Corporation. That means you need to pay DE Franchise Taxes annually. These taxes have nothing to do with revenue, income, profitability, or even if you have a presence in the state. This is separate from the income “tax return” that is known as the 1120. Franchise tax is not for franchise businesses; it is essentially a tax for the privilege of being a DE C Corp.When are my Delaware Franchise Taxes Due?The DE Franchise Taxes are due on Feb 28th of every year, whereby the previous year’s taxes are due. For example, a Company incorporated in 2018 would pay their 2018 DE Franchise Taxes no later than February 28, 2019.Where should I file the DE Franchise Tax?Do it online: ​Annual Report and Tax Instructions - Division of Corporations - State of DelawareWhat Method Should I use?Most of our startups use the ​Assumed Par Value Capital Method because it typically results in a lower tax amount. In order to use this method, you must give figures for all issued shares (including treasury shares) and total gross assets in the spaces provided in your Annual Franchise Tax Report. Total Gross Assets should be those “total assets” on your balance sheet. These will also be reported on your Schedule L on your Form 1120 Corporate Income Tax Return.Here is a generic screenshot for DE Franchise Tax that shows where you input these amounts. Once you fill in the boxes, don’t forget to hit the “​Recalculate​” button and let it process!How much should I expect to pay?Most of our Seed - Series B startups pay between $400 - $10,000 in DE Franchise Taxes. The driving factors in the amount of tax due are 1) Your number of Shares Issued and Outstanding and 2) the Assets on the Balance Sheet as of 12/31/XX. In general, the more Assets you have the more you will pay in DE Franchise tax.If you’ve received a bill for $75,000, it’s because Delaware has calculated the tax under the​Authorized Shares Method​. Don’t freak out; recalculate using the ​Assumed Par Value Capital Method​.What is Par Value?Par Value is the value per share. From most cap tables, that par value is typically set at $0.0001/share or $0.00001/share. The Par Value has no connection to the market value of the share of stock.What Date should I use to value the Gross Assets?12/31/XX (most often).How can I check if my DE Franchise Taxes have been paid or not?You can check online at the Delaware Corporations Information System: ​Login to Delaware’s site. Once you’re logged onto the system, if last year only returns a “​File Amended Annual Report​”, then the prior year’s DE Franchise Tax Report has been filed. You are good to go! If you are prompted to “​File Report​”, then you are currently due (or not in​ Good Standing​) and need to file ASAP. Often, you will be required to provide a DE Statement of Good Standing at the close of a fundraise, or during the state registration process, so it is crucial that this doesn’t fall out of good standing!Kruze Consulting is a leading provider of accounting, finance, HR and tax consulting to venture capital funded startups. Kruze's clients have raised over half a billion dollars in financing in the past 12 months, and the Kruze team takes pride in setting up systems that prepare startups to successfully navigate venture capital due diligence.

You must pay the Delaware Franchise Tax whether or not you generated revenue or even operated in Delaware. If you were incorporated in Delaware as most startups are, you must pay the Delaware Franchise Tax every February. The driving factors in the amount of tax due are 1) Your number of Shares Issued and Outstanding and 2) the Assets on the Balance Sheet as of 12/31/XX. In general, the more Assets you have the more you will pay in DE Franchise tax. Here are some FAQs about the Delaware Franchise Tax:What is the Delaware Franchise Tax?If you are a venture-backed startup, you most likely incorporated as a Delaware C Corporation. That means you need to pay DE Franchise Taxes annually. These taxes have nothing to do with revenue, income, profitability, or even if you have a presence in the state. This is separate from the income “tax return” that is known as the 1120. Franchise tax is not for franchise businesses; it is essentially a tax for the privilege of being a DE C Corp.When are my Delaware Franchise Taxes Due?The DE Franchise Taxes are due on Feb 28th of every year, whereby the previous year’s taxes are due. For example, a Company incorporated in 2018 would pay their 2018 DE Franchise Taxes no later than February 28, 2019.Where should I file the DE Franchise Tax?Do it online: ​Annual Report and Tax Instructions - Division of Corporations - State of DelawareWhat Method Should I use?Most of our startups use the ​Assumed Par Value Capital Method because it typically results in a lower tax amount. In order to use this method, you must give figures for all issued shares (including treasury shares) and total gross assets in the spaces provided in your Annual Franchise Tax Report. Total Gross Assets should be those “total assets” on your balance sheet. These will also be reported on your Schedule L on your Form 1120 Corporate Income Tax Return.Here is a generic screenshot for DE Franchise Tax that shows where you input these amounts. Once you fill in the boxes, don’t forget to hit the “​Recalculate​” button and let it process!How much should I expect to pay?Most of our Seed - Series B startups pay between $400 - $10,000 in DE Franchise Taxes. The driving factors in the amount of tax due are 1) Your number of Shares Issued and Outstanding and 2) the Assets on the Balance Sheet as of 12/31/XX. In general, the more Assets you have the more you will pay in DE Franchise tax.If you’ve received a bill for $75,000, it’s because Delaware has calculated the tax under the​Authorized Shares Method​. Don’t freak out; recalculate using the ​Assumed Par Value Capital Method​.What is Par Value?Par Value is the value per share. From most cap tables, that par value is typically set at $0.0001/share or $0.00001/share. The Par Value has no connection to the market value of the share of stock.What Date should I use to value the Gross Assets?12/31/XX (most often).How can I check if my DE Franchise Taxes have been paid or not?You can check online at the Delaware Corporations Information System: ​Login to Delaware’s site. Once you’re logged onto the system, if last year only returns a “​File Amended Annual Report​”, then the prior year’s DE Franchise Tax Report has been filed. You are good to go! If you are prompted to “​File Report​”, then you are currently due (or not in​ Good Standing​) and need to file ASAP. Often, you will be required to provide a DE Statement of Good Standing at the close of a fundraise, or during the state registration process, so it is crucial that this doesn’t fall out of good standing!Kruze Consulting is a leading provider of accounting, finance, HR and tax consulting to venture capital funded startups. Kruze's clients have raised over half a billion dollars in financing in the past 12 months, and the Kruze team takes pride in setting up systems that prepare startups to successfully navigate venture capital due diligence.