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Foreign Disregarded Entities

Posted by Brandon Keim | Sep 09, 2022 | 0 Comments

According to the U.S. State Department, an estimated 6.5 million Americans are living outside the confines of the U.S., but fewer than two million of them paid federal taxes in 2019. Many expats may be unaware they even need to file taxes—but the Internal Revenue Service (IRS) is sending notices to covered expatriates of tax liability. Don't wait for your notice. Instead, consult with a tax attorney. Determining if you owe any taxes can be surprisingly complex, particularly if you own a foreign company. But if you're eligible, you may be able to limit your liability if the company is a “foreign disregarded entity.”

What is an FDE?

A “foreign disregarded entity” (FDE) is a company owned (in whole or in part) or operated by an American living abroad, and that operates outside of the U.S., but it is not taxed as a corporation. FDEs also include companies owned by that are wholly located outside of the U.S. and may include foreign branches of a U.S.-based company or foreign entities with interest in a foreign branch.

What if My Company is Considered an FDE?

The effect of being considered an FDE is that, for tax purposes, it's akin to an American (in the U.S.) LLC. You and the company are not considered separate entities. If eligible, you must submit a Form 8858 declaration regarding the company's status, and then you can pay for income as if you were a self-employed business. And, given the Foreign Tax Credit, you may be able to deduct taxes relating to the company that you paid to other countries.

Get Help From an Experienced Tax Attorney

If you are living outside of the U.S., and you want to know if you are eligible to file a disregarded foreign entity, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.


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