The LLC you were told to set up answers a different question

Nearly every Latin American family that buys in the United States gets the same advice, and gets it early: put it in an LLC. It usually comes from the real estate lawyer or the closing agent, and it is usually good advice, because it solves the problem that was actually on the table that day. It limits liability. It keeps the buyer's name off the county register.

What almost never gets said in that meeting is that the federal estate tax was not the question being answered.

This piece is about the gap. It is written for the person who already has the LLC and assumes the matter is closed, and for the person about to build a structure who wants to know, before signing, what it buys and what it costs.

The awkward part goes first. There is no settled answer here. There is a prevailing view, a regulatory logic that points clearly in one direction, and not one decided case on the exact point.

6exceptions in the regulation, and estate tax is not one6exceptions in the regulation, and estate tax is not oneOne sentence in the regulations settles the usual argument

Under the classification regime everyone calls check-the-box, Treas. Reg. § 301.7701-2(c)(2)(i) provides that a business entity with a single owner that is not a corporation "is disregarded as an entity separate from its owner." For federal tax purposes the owner is treated as holding the asset directly.

The counterargument writes itself: under Delaware law the LLC is a legal person distinct from its member, so what exists on the date of death is an LLC interest, not a condominium. Treas. Reg. § 301.7701-1(a)(1) got there first:

"Whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law."

The separateness state law creates is real. It just does not answer the federal question. The exceptions the regulation does recognize number six, among them employment taxes and the section 6038A reporting rule. Estate tax is not one of them.

And if the owner is treated as holding the real estate directly, that real estate is US-situs under Treas. Reg. § 20.2104-1 and sits in the gross estate under section 2103. Behind a shield of $60,000, not $15,000,000.

0decided cases and published rulings on the point0decided cases and published rulings on the pointNobody has won this case, and nobody has lost it

We looked for a decided case, a revenue ruling, a private letter ruling or chief counsel advice deciding whether a single-member LLC blocks estate tax for a nonresident. We found none, in either direction. The most detailed treatment in the professional literature, by Thomas Giordano-Lascari and Michael J. A. Karlin, cites no authority on the point at all. It assumes the exposure and moves on.

That does not leave the question wide open. The IRS operates as though that is the answer, and the practitioners agree. Virginia La Torre Jeker puts it this way:

"The IRS view is that since an SMLLC is disregarded for tax purposes, the underlying real estate is considered directly owned by the NRA, making it subject to estate tax upon the death."

What the silence does mean is that anyone who tells you the matter is settled is running ahead of the authority, whichever way they are running. The contrary argument exists, and the uncertainty cuts both ways. If check-the-box is only an income tax rule, then the property that exists at death is the LLC interest, and if that interest is the property and the LLC is a Delaware one, someone can argue the interest itself is US-situs even where everything inside it sits abroad.

As for the case everyone cites, *Pierre v. Commissioner*, 133 T.C. 24 (2009), held that transferring an interest in a single-member LLC transfers the interest and not the underlying assets, so lack of control and marketability discounts applied. It was a gift tax valuation case with a US donor. No nonresident, no situs analysis, no section 2104. The ACTEC Foundation calls its extension to transfers at death "unresolved."

2default classifications, pointing opposite ways2default classifications, pointing opposite waysThree letters, two opposite results

The initials tell the IRS nothing. The place of organization does. Treas. Reg. § 301.7701-3(b)(1) makes a domestic eligible entity with one owner disregarded by default. Treas. Reg. § 301.7701-3(b)(2)(i) makes a foreign eligible entity a corporation by default where all its members have limited liability. Same three letters, opposite defaults.

That produces the most counterintuitive move in this area: filing Form 8832 so the US LLC is taxed as a corporation. The entity becomes an association, an association is a corporation under section 7701(a)(3), and because it was organized under state law it is domestic under section 7701(a)(4). Its shares are then US-situs property by the express words of section 2104(a). The election made to improve the position makes it worse, absent a treaty, and there is no estate tax treaty with any Latin American country.

0times the IRS has won that attack, in anything we found0times the IRS has won that attack, in anything we foundThe foreign corporation blocks on the statute, and that is where the caveats start

Section 2104(a) says a nonresident's shares are property within the United States "only if issued by a domestic corporation," and Treas. Reg. § 20.2105-1(f) places shares of a corporation that is not domestic outside the United States, "regardless of the location of the certificates." This is not a creative reading. It is the text.

Which makes it worth noticing how practitioners write for each other. Giordano-Lascari and Karlin do not write "there is no estate tax." They write "generally thought," and "the conventional wisdom is that there should be no estate tax." Their reason sits in a footnote: the attacks the IRS has won against domestic family partnerships could be turned on the foreign corporation, and "it remains to be seen to what extent such attacks will be forthcoming or successful."

We found no case in which the IRS has applied that doctrine to a nonresident's foreign blocker, and nothing saying it cannot. Estate of Powell (2017) and Estate of Fields (T.C. Memo. 2024-90, affirmed by the Fifth Circuit on 8 June 2026, with a 20% accuracy-related penalty) are domestic cases.

There is one case involving foreign entities. In *Estate of Swan*, 24 T.C. 829 (1955), a decedent who was neither a US citizen nor a US resident had created two stiftungs, one Swiss and one from Liechtenstein, and the estate argued they were foreign corporations. The court looked at what they did: they funded the care and education of family members, carried on no business activity, and the decedent had kept the power to amend their articles and to revoke them outright.

Swan is not authority that foreign entities get ignored. It stands for two smaller and more useful things: the label the home-country adviser puts on an entity does not control, and a retained power to revoke destroys the structure. A corporation with real substance, no revocation power, and no US property contributed to it after the fact is a materially different case.

30%branch profits tax, section 884(a)30%branch profits tax, section 884(a)What it costs instead

The blocker trades estate tax for income tax. That trade can be an excellent one. What it never is, is free. Corporations pay 21% under section 11(b) and get no preferential capital gains rate, against the 20% an individual would have paid on the same sale. On what comes out of the foreign corporation, section 884(a) imposes a 30% branch profits tax unless a treaty reduces it, and no Latin American country gets there. And contributing property you already own can trigger the gain on the spot, because section 897(e) denies section 351 nonrecognition.

Personal use by a director or officer will likely produce imputed rental income to the corporation unless rent is paid at a market rate. The structure ends up requiring somebody to charge himself rent for sleeping in his own bedroom.

0step-up, if the asset stays out of the gross estate0step-up, if the asset stays out of the gross estateThe line item nobody quotes: basis

Section 1014(a)(1) sets the basis of property acquired from a decedent at "the fair market value of the property at the date of the decedent's death," the rule that wipes out a lifetime of appreciation. Section 1014(b)(9) attaches a condition: the property has to have been included in the decedent's gross estate under chapter 11.

Read them together and the trade shows up whole. Property inside the taxable estate pays estate tax and hands the heirs a fresh market-value basis. Property the structure keeps outside pays no estate tax and gets no fresh basis. Cynthia Wu: "This can result in larger taxable gains when the real estate is eventually sold, even as the structure successfully avoids U.S. gift and estate tax on its value."

For a family that bought twenty years ago and does not intend to sell, the blocker converts a one-time 40% exposure into a built-in gain the family inherits permanently. Whether that is a good trade is arithmetic, and it fits on a spreadsheet before anything gets incorporated.

3 yearshow far section 2035 reaches back3 yearshow far section 2035 reaches backThe trust works. The date decides

The irrevocable trust funded before the purchase is the cleanest answer in the literature, and the one least often sold, because it asks for something nobody enjoys giving.

The shape Giordano-Lascari and Karlin describe: an irrevocable trust in an offshore jurisdiction, funded with cash or other assets, "but not U.S. real property," with an independent trustee holding complete discretion over distributions. The trust then buys the property. Three conditions, none of them negotiable: the settlor keeps no right to the income, cannot revoke or amend, and retains no dominion or control over the assets.

The date matters because of section 2104(b), the least explained provision in this whole area. Property transferred within the reach of sections 2035 through 2038 is treated as situated in the United States "if so situated either at the time of the transfer or at the time of the decedent's death."

Fund it first and what goes in is cash or foreign assets, which for a nonresident is not even a taxable gift under section 2501(a)(2), and the decedent never personally owned the US property. Fund it afterward and the contribution is itself a taxable gift of US real property, any retained power pulls the property back under section 2036 or 2038, and section 2035 covers the three years after that power is given up.

There is a cost that arrives fifteen years later. If any beneficiary is or becomes a US person, section 668 imposes an interest charge on accumulation distributions from a foreign trust, and section 643(i)(1) treats permitting "the use of any other trust property" by a US beneficiary as a distribution at fair market value. A child with a green card using the trust's apartment rent free is receiving, as far as the IRS is concerned, a distribution. The parents' estate tax problem is solved and an income tax problem appears for the children.

100%of the non-US estate that has to be disclosed100%of the non-US estate that has to be disclosed"Then I will just mortgage it"

It is the quickest answer and the most misleading, because part of it is true.

Treas. Reg. § 20.2053-7 divides the cases. Where the estate is liable on the debt, the full value of the property goes into the gross estate and the debt comes off as a deduction. Where the estate is not liable, only the equity of redemption is returned, meaning the property less the debt. And that deduction carries two conditions. Section 2106(a)(1) prorates it in the ratio of US assets to the worldwide estate. Then comes section 2106(b):

"No deduction shall be allowed ... in the case of a nonresident not a citizen of the United States unless the executor includes in the return ... the value at the time of his death of that part of the gross estate of such nonresident not situated in the United States."

Read that twice. To deduct the mortgage on the Miami apartment, the estate has to tell the IRS what the decedent owned everywhere else. The land, the operating company, the portfolio in Zurich. For a family whose reason for the structure was discretion, that is a real price, and nobody mentions it when the mortgage gets proposed as planning.

That leaves nonrecourse debt, and there sits *Estate of Fung*, 117 T.C. 247 (2001), affirmed by the Ninth Circuit in 2003. The decedent was a citizen of Hong Kong and a nonresident alien. His interest in a California property was worth $442,500 and encumbered to the extent of $324,974, and the note made the borrowers "jointly and severally, directly and primarily" liable. The Tax Court included the full value of that interest rather than the equity. California bars a lender from pursuing the borrower for the shortfall on a home loan, and it did not help: a loan is treated as recourse wherever state law lets the lender elect among alternative remedies.

"The mortgage is nonrecourse in Florida" is not a conclusion. It is a question for counsel, about that particular note.

Six structures, side by side

Assuming no estate tax treaty, which is the correct assumption for every Latin American country.

21%against 40%, which is the comparison that decides21%against 40%, which is the comparison that decidesWhen a structure genuinely is the answer

It would be dishonest to stop there, because for some families a structure is exactly right.

The first is the investor, not the homeowner. Where the property produces income, has real business substance, is never used personally and is meant to be sold rather than inherited, the foreign corporation with a US company beneath it has been the mainstream answer for decades. Karlin calls that two-tier version "perhaps the most common structure for foreign investors investing in U.S. real estate." A step-up is irrelevant to someone who intends to sell in his lifetime, and 21% against 20% is small next to 40%.

The second is the family with a low-basis asset it will never sell and a genuine willingness to give up control. The two conditions that usually fail are not legal but behavioral: the control has to actually go, and the decision has to be made before the purchase.

A third does not apply here, and it explains why much of the English-language material will not serve you. It assumes a British, French or German client, where a US corporation works precisely because the treaty exempts its shares.

And there is a warning this article cannot answer for you. All of the above is US law. Owning a foreign holding company, or being the settlor or a beneficiary of a foreign trust, has consequences at home that vary by country and by year, and are sometimes worse than the problem you set out to solve. That question belongs to your local counsel.

What to check this week

To recap. A single-member US LLC is generally disregarded, so the prevailing view is that it blocks nothing for estate tax purposes; no court has decided it, and that silence cuts both ways. Electing corporate treatment makes the position worse. The foreign corporation blocks on the text and is paid for in income tax, in formalities and in the heirs' basis. The pre-funded trust works and is paid for in control. The mortgage does little and is paid for in privacy. None of those questions was the one your real estate lawyer had in front of him at closing, which is not a criticism but the scope of what he was asked.

The practical part is short and costs nothing. Pull the LLC file and find four facts: where it was organized, how many members it has today, whether Form 8832 was ever filed, and the date the property was transferred into the entity relative to the date it was bought. Those four decide which row of the table above you are standing in, and reading them takes no fee.

There is a fifth question the file will not answer. If the structure did not work the way it is supposed to, where would the money come from to pay the tax at the nine month mark without selling the apartment? A structure decides whether the tax is owed. Liquidity decides whether the family can pay it without taking the estate apart. Where a structure is right it should be built, and built with a US attorney.

This article is general educational information. It is not legal or tax advice, and not an offer. Every situation turns on its own facts and on how the documents are drafted: consult your US attorney and your adviser at home.