A resident Alien staying outside US in the Middle East owns 49% stake in a two member limited liability company (LLC) in the Middle east. The LLC is not a US entity by incorporation. The resident alien has full power of attorney for the company and is the sole authorized signatory for the company..

In such a case, would the company be classified as a US entity for taxation purposes..

Kindly clarify the tax implications here...

Regards,

US Investor

No, the company would not be classified as a U.S. entity. However, you need to file Form 5471 at least in the year you acquire the 49%. Further, if you (or you and other U.S. persons) control more than 50% of the vote or value of the company, then it will be treated as a controlled foreign corporation and you will be required to file 5471 each year and you may be subject to the subpart F income rules. If the LLC is not a controlled foreign corporation, then it may or may not be a passive foreign investment company.

Also, if you have signature authority or a financial interest in a foreign financial account (such as a bank account) and the balance of the account is $10,000 or more at any time during the year, then you should file Form TD F 90-22.1.

There is a $10,000 penalty for failing to file Form TD F 90-22.1. The penalty for failing to file Form 5471 is usually $10,000 but can be $20,000 in certain years.