Are there any withholding obligations for a foreign-owned LLC selling vacant land with installments?

Are there any withholding obligations for a foreign-owned LLC selling vacant land with installments?

by Dafna Meltzer, CPA | Aug 13, 2019

For a foreign-owned LLC selling vacant land with installments, are there any withholding obligations for this property type and form of contract?

You do not specify if this is a single-member LLC (and as such a disregarded entity) or if it is a multimember LLC, in which case it would be taxed as a partnership (Sub-S status would not be available because of the foreign owner). In any case, any income directly connected to the United States (and you cannot be more connected than by land) earned by a foreign individual is subject to withholding. The individual can then file his or her own tax return and, if appropriate, ask for a refund.

Here is the actual wording from the IRS website:

“It is important to note that if during a partnership's tax year the partnership has taxable income effectively connected with the conduct of a trade or business within the United States that is allocable to a foreign partner, the Internal Revenue Code requires the partnership to report and pay a withholding tax under IRC Section 1446 to the IRS. The partnership must pay the IRC Section 1446 withholding tax regardless of the amount of foreign partners' ultimate U.S. tax liability and regardless of whether the partnership makes any distributions during its tax year.”

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Answered by: Dafna Meltzer, CPA, is with Meltzer & Meltzer CPAs in Elkins Park, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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