One thing nobody's mentioned yet is state tax considerations. I'm a Brazilian with a Wyoming LLC and discovered that even though I don't have federal tax filing requirements as a non-resident alien (beyond the Form 5472 already mentioned), some states might still require filing. Wyoming is great because there's no state income tax, but if you formed your LLC in a state with income tax, you might have state filing requirements even without US-source income.

This thread has been incredibly helpful! I'm in a similar situation as a Canadian citizen with a Delaware LLC (mistake on my part - should have gone with Wyoming!). Just wanted to confirm something based on what I'm reading here: if I'm providing digital marketing services to US clients entirely from my home office in Toronto, I would use W-8BEN-E and NOT claim any effectively connected income, correct? My services are performed 100% remotely with no US physical presence. Also, the Form 5472 requirement is news to me - I've been operating for 8 months and had no idea about this filing obligation. Is there any relief for reasonable cause if you genuinely didn't know about the requirement? That $25k penalty is absolutely terrifying for a small business owner. Thanks to everyone who shared their experiences - this is exactly the kind of real-world guidance that's impossible to find in IRS publications!

The enforcement reality is that the IRS has audited exactly ONE church for political activities in the last decade due to budget cuts and the special church audit rules. Churches know this and that's why you see more blatant political activity. Unless something changes with IRS funding or Congress modifies the law, don't expect much enforcement regardless of what the tax code says. Your best bet is public pressure and media attention if you see violations, not expecting the IRS to step in.

This is really eye-opening. I had no idea about the Church Audit Procedures Act creating those extra barriers for IRS investigations. It explains why I've seen some pretty obvious political endorsements from pulpits in my area with seemingly no consequences. The fact that they've only audited ONE church in the last decade despite hundreds of complaints really shows how toothless this enforcement has become. It's frustrating because the Johnson Amendment seems like it should be straightforward - stay out of candidate endorsements or lose your tax exemption - but the reality is much more complex. @Giovanni Martello makes a good point about public pressure being more effective than expecting IRS action. Maybe that's the real deterrent these days - the potential for bad publicity rather than actual tax consequences.

Quick tip that helped me: if you go to the IRS Penalty Handbook in the Internal Revenue Manual (IRM 20.1.2), it specifically addresses reasonable cause criteria for penalty abatement. The 90% threshold is mentioned there as one of the factors that can indicate reasonable cause for relief from the Failure to Pay Penalty. So even if technically the penalty should apply, there's administrative guidance that essentially creates this 90% safe harbor that tax software like Ultratax is correctly implementing.

This is a great discussion that highlights how complex tax penalty calculations can be! I've been a tax preparer for about 3 years and I'm still learning these nuances. What I find frustrating is that the IRS doesn't make these administrative practices more visible in their standard publications. I've had clients question penalty calculations before, and it's hard to explain why software is "right" when you can't easily find the supporting documentation. Does anyone know if there's a comprehensive resource that covers these types of administrative penalty relief guidelines? It would be helpful to have something to reference when clients ask about penalty calculations that seem counterintuitive based on the basic IRS forms and instructions. Also, for those mentioning the Internal Revenue Manual - is this something that's regularly updated, or are these guidelines pretty stable year to year?

Another option you could consider is forming an S-Corp instead of a partnership. That would allow you to be both an owner AND an employee. You could take a reasonable W-2 salary (saving on SE tax for amounts above that salary) and then take distributions for the rest of your share. Obviously there are other factors to consider with entity selection, but I switched from a partnership to an S-Corp specifically because of this salary issue and it's saved me thousands in self-employment taxes.

I went through this exact situation when I started my consulting partnership. The guaranteed payment route that Keisha mentioned is definitely the right approach - it's specifically designed for situations like yours where one partner is doing the operational work. One thing I'd add is to make sure your partnership agreement specifies that these guaranteed payments are made regardless of partnership profitability. This protects your monthly income even if the business has a slow period. We learned this the hard way when our first quarter was rough and my partner questioned whether I should still get paid. Also, consider setting up a separate business checking account just for your guaranteed payments. It makes the bookkeeping much cleaner and helps with quarterly tax planning. I transfer 35% of each payment to a tax savings account immediately - better to overestimate than get hit with penalties. The IRS has some good examples in Publication 541 that show exactly how guaranteed payments work in different scenarios. Worth reading before you finalize your partnership agreement!

This whole conversation is making my head spin. I looked into this same thing and the complexity/cost made me abandon the idea. Between GILTI, Subpart F, 962 elections, PFIC rules, annual reporting... I just keep my business structure simple now. In my experience, smaller businesses (<$5M revenue) often spend more on compliance and international tax experts than they save with these structures. The rules are designed to make it difficult for exactly the scenario you described. Just something to consider before going down this rabbit hole. Maybe explore other visa options that don't require such complex tax structures?

I've been through this exact scenario and want to share some practical insights. The complexity everyone's discussing is real, but it's manageable with the right approach. First, regarding your CPA's $12K quote - that's actually reasonable for comprehensive international tax planning. I paid similar amounts and it saved me significantly more in avoided penalties and optimized structures. The issue isn't the cost, it's finding someone who specializes in this area rather than a generalist CPA. On the technical side, your assumption about undistributed funds being shielded is unfortunately incorrect. Under current rules (post-2017 Tax Cuts and Jobs Act), the US has largely eliminated tax deferral for CFCs. GILTI inclusions happen annually regardless of distributions, and the rates can be substantial depending on your structure and jurisdiction. However, there are legitimate ways to optimize this. The Section 962 election mentioned above is huge - it can reduce your effective tax rate on foreign earnings from individual rates (up to 37%) down to corporate rates (21% base, potentially lower with deductions). The foreign tax credit calculations become complex but can provide significant relief in higher-tax jurisdictions. My recommendation: start with the comprehensive analysis (whether through a specialist or service like the ones mentioned), understand your actual tax liability under different scenarios, then decide if the benefits still justify the complexity. Don't make structural decisions based on outdated information about how these rules work.