IRS Makes it More Difficult to Setup U.S. Business

In general, there are not any restrictions on foreigners owning U.S. businesses.  The corporation, LLC, or other business entity files its formation documents with the appropriate state government office in a very straightforward process.  Next, the entity must apply for a tax identification number known as an “EIN.”

In the past, there was no problem with a foreigner applying for and receiving this EIN for their business.  However, as of May 13th in order to apply for an EIN the responsible party for the business must have their own tax identification number.  For a U.S. citizen or green card holder this is a social security number, and for other taxpayers it is an ITIN.  The person listed as the responsible party is not a mere formality, they become responsible if there are ever issues with the taxes of the business.  This is a big responsibility and taxpayers should be cautious of any business willing to take this risk.

This has now become a potential impediment for foreign investors.  The options are to find a person with an identification number who is willing to be the U.S. responsible person, or to try to get an ITIN themselves, which is also not always the easiest process.

Overall, taxpayers should not let this deter them from investing in the U.S.  The main takeaway is to be prepared to address the situation, and to make sure whatever attorney is forming your business has also addressed it or you may not have the ability to file a valid tax return.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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