As an outgrowth of the Panama Papers, the US Treasury Dept. has promulgated new rules effective 2018 to force financial institutions (i.e. banks, brokers, mutual funds et al) to disclose ownership of shell companies. The new rules requires financial institutions to obtain identities of “beneficial owners” of their client companies and at least one manager who controls the entity. The new rules require banks to verify and identify anyone who owns 25% or more of a legal entity (see US Treas. Dept./Financial Crimes Enforcement Network; Fincen Rule RIN:1506-AB 25).
In addition the US Treasury Dept. will require transparency for wholly owned Limited Liability Companies aimed at foreign entities operating through disregarded entities in the US. The new rules treat entities as domestic companies separate from their owners and will require single member LLCs (owned thru foreign owners) to do the following:
1) Foreign owners of a single member LLC would have to get an Employer ID # from the IRS;
2) Foreign owners would have to do the same reporting and compliance that is required for 25% foreign owned corporations under IRC 6038A. They would have to file Form 5472 Information Return due for a foreign owned US corporation or a foreign corporation engaged in a US Trade or Business. (IRC 6038A, 6038C)
3) Report all “related party transactions”. To ensure that these entities have to report all transactions with related parties, the rules create a new category of reportable transactions, which include any transaction within the meaning of Treas. Reg Sec. 1.482-1(i)(7), including: any sale, assignment, lease, license, loan, advance, contribution, or other transfer of any interest in or a right to use any money or property, as well as performance of services f/b/o taxpayer.
The LLC rules are proposed Treasury Regulations (under IRC 7805) which become effective as final regulations after comments and testimony are received. See Prop Treas. Reg-127199-15 and Fincen Final Rules RIN: 1545-BM94).