The Treasury Department announced several actions intended to strengthen financial transparency and combat the misuse of companies to engage in illicit activities.  The announcement describes:

  • Proposed regulations issued by the IRS to increase the reporting and record maintenance requirements of US disregarded entities owned by foreign persons
  • Final regulations issued by the Financial Crimes Enforcement Network (FinCEN) increasing customer due diligence requirements for financial institutions
  • Proposed legislation that would require companies to know and report beneficial ownership information to Treasury at the time of the companies’ creation and expand FinCEN’s Geographic Targeting Order (GTO) authority

The proposed regulations issued by the IRS would treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for the purposes of the reporting, record maintenance and associated compliance requirements that apply to 25% foreign-owned domestic corporations under section 6038A.  The proposed regulations would also add an additional catch-all category of “reportable transactions” for 6038A purposes, which would include any sale, assignment, lease, license, loan, advance, contribution, or other transfer of any interest in or a right to use any property or money, whether or not formally documented, as well as the performance of any services for the benefit of, or on behalf of, a related foreign person.  As a result, under the proposed regulations, foreign-owned domestic disregarded entities would be required to file a Form 5472 information return and maintain records with respect to all transactions with foreign related parties.  A transaction between a domestic disregarded entity and its foreign owner (or another disregarded entity of the same owner) would be considered a reportable transaction for purposes of the section 6038A reporting and record maintenance requirements, even though, because it involves a disregarded entity, it generally would not be considered a transaction for other purposes.