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I'm a person that lives outside of the US. I'm in the process of creating an LLC in New Mexico, which I will own 100%.

I have read in different sources that foreign-owned LLCs must file the 1120 form every year.

I was trying to find in the IRS the documents were that is stated. In the instructions for the 1120, I found a paragraph that which I think applies to me (in General Instructions / Who must File):

Foreign-owned domestic disregarded entities.

If a foreign person, including a foreign corporation, wholly owns a domestic disregarded entity (DE), the domestic DE is treated as a domestic corporation separate from its owner (the foreign corporation) for the limited purposes of the requirements under section 6038A that apply to 25% foreign-owned domestic corporations. While a DE is not required to file a U.S. income tax return, a DE covered by these rules is required to file a pro forma Form 1120 with Form 5472 attached by the due date (including extensions) of the return. See the Instructions for Form 5472 for additional information and coordination with Form 5472 reporting by the domestic DE.

I'm having trouble to understand the term "domestic". My guess is that a domestic LLC is just simply an LLC founded in some state of the US. But I'm not 100% sure.

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My guess is that a domestic LLC is just simply an LLC founded in some state of the US.

This is correct.

Strictly speaking, it could also be formed under the laws of the District of Columbia, or a U.S. territory such as Puerto Rico or the U.S. Virgin Islands, as opposed to a U.S. state, as well.

There are also entities that can be formed formed under federal law (e.g. national banks, Amtrak), but in almost all cases they have to be classified as corporations rather than partnerships for tax purposes anyway.

The bottom line is that a New Mexico LLC owned 100% by a Mexican person is taxed as a C corporation for purposes of U.S. federal income tax law.

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  • "a New Mexico LLC owned 100% by a Mexican person is taxed as a C corporation" - by Mexican person do you mean a person from Mexico or from New Mexico? I'm not from either just curious... I live in Europe
    – tuket
    Jan 7, 2023 at 9:05
  • @tuket A Mexican person is a person from Mexico. A person from New Mexico is a New Mexican person.
    – ohwilleke
    Jan 8, 2023 at 16:42
  • Interesting, so is that a special case for Mexican people?
    – tuket
    Jan 9, 2023 at 13:04
  • @tuket "is that a special case for Mexican people?" No. What are you taking about? I'm must applying the general rule to the facts of the OP.
    – ohwilleke
    Jan 9, 2023 at 16:22
  • I'm the OP haha, and I I'm not Mexican. That's why I was a bit confused you were explicitly mentioning Mexico. So I guess where you said "mexican" could be replaced by "non-US person", right?
    – tuket
    Jan 10, 2023 at 17:28

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