The LLC is a: A) Corporation; B) Partnership; C) disregarded entity; D) any of the above.
The correct answer is D) Any of the above. As you know, the US IRS classifies every non-trust Company as either a partnership, corporation, or disregarded entity. This applies to both domestic US LLCs and foreign LLCs. While there are default rules for the classification of both foreign and domestic LLCs, one has the option in both cases of selecting a different classification simply by checking the box on IRS form 8832.
Under the default rules, a domestic LLC is considered a partnership if it has two or more members and a disregarded entity if it only has one member. Under those same rules a foreign LLC is considered: a partnership if it has two or more members and at least one of the members does not have limited liability; a corporation (in tax law language, it is actually called an association) if it has two or more members all of which have limited liability; and, a disregarded entity if it has a single member who does not have limited liability.
But as noted, that can be changed by checking the box on the form 8832.
Thus, an LLC whether foreign or domestic can choose to be considered either a corporation or partnership for tax purposes, and if it only has one member, even if that member is another LLC, partnership, corporation, or other entity; it can choose to be considered a disregarded entity for tax purposes.
Consequently, one could have a Delaware LLC owned by a foreign company that could be a disregarded entity for US tax purposes. Such an LLC could still have a US tax number, bank accounts, and even brokerage accounts. If it were indeed owned by a foreign company, under the rules governing the use of IRS form W-8 BEN, the beneficial owner of the LLC would be the foreign company. So long as that Delaware LLC had no US income except bank interest and capital gains, it would not be required to file any US tax return nor be liable for US taxes. Indeed, it could operate businesses throughout the world, and so long as they were not effectively connected with the United States there would be no tax or tax return due.
The LLC act of the Republic of the Marshall Islands is almost word for word copied from the Delaware act, which means the two can be made to fit perfectly together. In this example, the US LLC and the Marshall Islands LLC could mirror each other in every respect except that the US LLC could be treated as a disregarded entity for US tax purposes, while the Marshall Islands LLC could be treated as a foreign corporation for US tax purposes. As such, the Marshall Islands LLC would be the beneficial owner of the US LLC. Which would legally shield the identities of the owner of the Marshall Islands LLC.
If one wanted to get even more complicated, one could set up a Delaware series LLC owned a by a mirror image Marshall Islands series LLC, in which case the Marshall Islands LLC would own a the Delaware LLC, and each series within the Marshall Islands LLC would own the complementary series within the Delaware LLC. This provides major asset protection alongside tax simplification, or in the case of foreign persons, major tax efficiency.
