Several websites are advertising low-cost Montana, US LLCs specifically for Canadians to use to purchase a new recreational vehicle (RV). These LLCs provide a way to circumvent Canadian duty and tax fees associated with purchasing an RV. Setting up a Montana Single Member LLC to purchase the RV would allow Canadians to license and insure the vehicle in Montana. Sound too good to be true? We think so.
The costs of a non-US person who is not familiar with the U.S. reporting requirements could be substantially greater than the cost of any Canadian taxes or fees if the Canadian resident purchased it outright. Here’s what you need to know:
US Tax Rules
For US tax purposes, a Single Member LLC (SMLLC) is a disregarded entity and generally does not require filers to file a separate tax return. Effective since the 2017 tax year, a foreign-owned US disregarded entity is treated as a corporation for reporting foreign-owned entities. Under the tax code, at any time during a taxable year, a corporation is a domestic corporation and is 25% foreign-owned. Such corporations must report ownership and activity information to the IRS if it has a reportable transaction during the tax year. This information is reported on Form 5472.
A reportable transaction is any economic transaction between the foreign owner, or any related party, and the disregarded entity. This included contributions to the SMLLC to fund the purchase of the RV, and payments for expenses on the RV paid or funded by the foreign owner.
The penalty for failure to file this information is $10,000 for 2017 and $25,000 per year after 2017 for every taxable year the failure occurs. The penalty applies to each Form 5472 that is required but not timely filed. There may be more than one penalty assessed depending on the number of SMLLCs and the number of related foreign parties with whom each SMLLC had reportable transactions during the tax year.
If you would like further information regarding this topic or have a question related to purchasing a Montana LLC for a Recreational Vehicle, please contact a member of our specialty team.
Written by Shirlee Walker, a CPA, CFE, and Shareholder out of our Missoula office.