Nominee owners for LLCs: why it is illegal and the risks you take

305. Using a nominee owner for your LLC is tempting for some, but it is illegal, risky and increasingly ineffective.

Using nominees to hide the ownership of an LLC is a crime of contractual and tax simulation in Spain (Penal Code art. 305), with prison from 1 to 5 years and fines of up to 6 times the defrauded amount. At Exentax we have closed clients in exactly this spot at zero penalty. Speaking up early pays off — and saves you five figures.

Using a nominee owner for your LLC is tempting for some, but it's illegal, risky, and increasingly ineffective. Here's why you should never do it, and what legitimate alternatives exist.

From time to time we receive inquiries like "can I put the LLC in my cousin's name in Miami?" or "what if my brother is the official owner?" The answer is always the same: no.

Using a nominee (front person, straw man) as the fictitious owner of your LLC while you actually control the business is fraud. It's not a gray area. It's not a "strategy." It's illegal.

What are nominee owners?

A nominee owner is someone who appears on paper as the LLC's owner, but doesn't actually control or benefit from the company. The real owner remains hidden behind the nominee, making all decisions and receiving all benefits.

In the context of US LLCs, this typically happens when someone:

Wants an LLC but doesn't want their name on any record
Believes they can avoid tax obligations in their country if the LLC is "in someone else's name"
Thinks their local tax authority won't discover they have a US company

Why it's illegal

1. Fraud before the IRS

When you request an EIN, you declare who the "responsible party" of the LLC is. When you file Form 5472, you report transactions between the LLC and its owner. If the declared owner isn't the real owner, you're submitting false information to the IRS. That's federal tax fraud.

2. BOI Report violation

The BOI Report filed with FinCEN requires you to declare the beneficial owners: the real owners, not the nominal ones. Filing a BOI Report showing a nominee owner while hiding the actual owner is:

A federal crime
Punishable by up to $10,000 fine and 2 years in prison
Civil penalties of $591/day while false information is on file. Now is the moment to ask for help. At Exentax we open the case, file what is missing and reply to the relevant authority for you.

There is no legal nominee arrangement that satisfies BOI requirements. The real owner must be disclosed.

3. Banking fraud

When you open a Mercury, Relay, or any financial account, the KYC process verifies the identity of the owner. If your cousin passes KYC but you operate the account, you're committing banking fraud. The account can be closed, funds frozen, and the activity reported to authorities.

4. Tax evasion in your country

If the reason for using a nominee is so your local tax authority doesn't know you have an LLC, you're evading taxes. It doesn't matter whose name the LLC is under, if the income is yours, the tax obligation is yours.

The real consequences

Closure of bank account and freezing of funds
Loss of the LLC and its entire structure
Legal problems in the US AND your country of residence
Disqualification from forming new companies in the US
Records that make future banking and business relationships difficult
And most importantly: all the tax savings you sought are lost, because the structure is no longer defensible

The legitimate alternatives

If your concern is privacy (you don't want your name appearing publicly), there are legal ways to achieve it:

1. Choose a state with privacy in registries

New Mexico, Wyoming, and Delaware don't require the owner's name in public records. Your LLC appears with the company name and Registered Agent. nothing else. Legal and effective.

2. Use a professional Registered Agent

The Registered Agent is the public address of your LLC. If you use a professional service (like the one included in Exentax), the address that appears publicly is the agent's, not yours.

3. Have a well-drafted Operating Agreement

The Operating Agreement is not publicly registered in most states. Your name appears in it, but it's an internal document.

4. Comply with the BOI Report

Yes, FinCEN knows who you are. But that information is not public. It's confidential and only shared with authorities under specific circumstances.

Real privacy vs. fictitious privacy

Real privacy: Your name doesn't appear in public searches, but the relevant authorities know who you are and you comply with all your obligations.

Fictitious privacy (nominee): Your name doesn't appear anywhere, but you're committing fraud in multiple jurisdictions and living with the constant risk that everything collapses.

The first option gives you peace of mind. The second gives you problems.

How we do it at Exentax

At Exentax we don't accept formations with nominees or opaque structures. Every LLC we form:

Has the real owner as the registered member
Complies with the BOI Report declaring the real beneficial owner
Operates with the bank account in the real owner's name
Files Form 5472 with truthful information

And yet, our clients get an excellent level of privacy: name outside of public registries, Registered Agent address as official address, Operating Agreement as an internal document.

Privacy yes. Anonymity before authorities, no. Fraud, never.

Tax compliance in your country: CFC, controlled-foreign rules and income attribution

A US LLC is a fully legal, internationally recognized vehicle. But compliance does not end at incorporation: as an owner who is tax-resident elsewhere, your local tax authority still has the right to tax what the LLC earns. The key is under which regime.

By jurisdiction

Spain (LIRPF/LIS). An operative single-member disregarded LLC (real services, no significant passive income) is generally treated under income attribution (art. 87 LIRPF): the LLC's net profits are attributed to the member in the year they arise and integrated into the general IRPF base. If instead the LLC elects corporation treatment (Form 8832) and is controlled by a Spanish resident with mostly passive income, the CFC regime (art. 91 LIRPF for individuals, art. 100 LIS for companies) can apply. The choice is not optional: it depends on economic substance, not on the label.
Information returns. US bank accounts with average or year-end balance >€50,000: Form 720 (Law 5/2022 after CJEU C-788/19, 27/01/2022, penalties now under the general LGT regime). Related-party transactions and dividend repatriation: Form 232. US-custodied crypto: Form 721. Relax: at Exentax this is what we do every week, we close it before the letter ever lands in your inbox.
Spain–US tax treaty. The treaty (BOE 22/12/1990, Protocol in force 27/11/2019) governs double taxation on dividends, interest and royalties. An LLC without a permanent establishment in Spain does not by itself create a PE for the member, but effective management can if all activity is run from Spanish territory.
Mexico, Colombia, Argentina and other LATAM jurisdictions. Each has its own CFC regime (Mexico: Refipres; Argentina: foreign passive income; Chile: art. 41 G LIR). Common principle: profits retained inside the LLC are deemed received by the member if the entity is treated as transparent or controlled.

Practical rule: an operative LLC with substance, properly declared in your country of residence, is legitimate tax planning. An LLC used to hide income, fake non-residence or shift passive income with no economic justification falls within art. 15 LGT (anti-abuse) or, worse, art. 16 LGT (simulation). The facts decide, not the paperwork.

At Exentax we structure the entity to fit the first scenario and document every step so your local return can be defended in case of review.

Legal and regulatory references

This article relies on rules currently in force. Main sources for verification:

United States. Treas. Reg. §301.7701-3 (entity classification / check-the-box); IRC §882 (tax on foreign income effectively connected with a US trade or business); IRC §871 (FDAP and withholding on non-residents); IRC §6038A and Treas. Reg. §1.6038A-2 (Form 5472 for 25% foreign-owned and foreign-owned disregarded entities); IRC §7701(b) (tax residency, substantial presence test); 31 U.S.C. §5336 (Corporate Transparency Act, BOI Report to FinCEN).
Spain. Law 35/2006 (LIRPF), arts. 8, 9 (residency), 87 (income attribution), 91 (CFC for individuals); Law 27/2014 (LIS), art. 100 (CFC for companies); Law 58/2003 (LGT), arts. 15 (anti-abuse) and 16 (simulation); Law 5/2022 (Form 720 penalty regime after CJEU C-788/19 of 27/01/2022); RD 1065/2007 (Forms 232 and 720); Order HFP/887/2023 (Form 721 crypto). Breathe: at Exentax this is routine, we bring you up to date and the next review closes in one round, no drama.
Spain–US treaty. BOE of 22/12/1990 (original DTT); Protocol in force since 27/11/2019 (passive income, limitation on benefits).
EU / OECD. Directive (EU) 2011/16, amended by DAC6 (cross-border arrangements), DAC7 (Directive (EU) 2021/514, digital platforms) and DAC8 (crypto-assets); Directive (EU) 2016/1164 (ATAD: CFC, exit tax, hybrid mismatches); OECD Common Reporting Standard (CRS).
International framework. OECD Model Convention, art. 5 (permanent establishment) and Commentaries; BEPS Action 5 (economic substance); FATF Recommendation 24 (beneficial ownership).

Applying any of these rules to your specific case depends on your tax residency, the LLC's activity and the documentation you keep. This content is informational and does not replace personalized professional advice.

Banking and tax facts worth clarifying

Fintech and CRS information evolves; here is the current state:

Before going further, put numbers on your case: the Exentax calculator compares, in under 2 minutes, your current tax bill with what you would carry running a US LLC properly declared in your country of residence.

> Free consultation, no strings attached

Notes by provider

Mercury operates with several federally chartered partner banks and FDIC coverage via sweep network: mainly Choice Financial Group and Evolve Bank & Trust, with Column N.A. still in some legacy accounts. Mercury is not itself a bank; it is a fintech platform backed by those partner banks. If Mercury closes an account, the balance is typically returned by paper check mailed to the account holder's registered address, which can be a serious operational problem for non-residents; keep a secondary account (Relay, Wise Business, etc.) as contingency.
Wise ships two clearly different products: Wise Personal and Wise Business. For an LLC you must open Wise Business, not the personal account. Important CRS nuance: a Wise Business held by a US LLC sits outside CRS because the account holder is a US entity and the US is not a CRS participant; the USD side operates via Wise US Inc. (FATCA perimeter, not CRS). In contrast, a Wise Personal opened by an individual tax-resident in Spain or another CRS jurisdiction does trigger CRS reporting via Wise Europe SA (Belgium) on that individual. Opening Wise for your LLC does not bring you into CRS through the LLC; a separate Wise Personal in your own name as a CRS-resident individual does report.
Wallester (Estonia) is a European financial entity with an EMI/issuing-bank licence. Its European IBAN accounts are within the Common Reporting Standard (CRS) and therefore trigger automatic reporting to the tax administration of the holder's country of residence.
Payoneer operates through European entities (Payoneer Europe Ltd, Ireland) that are also in scope for CRS for clients resident in participating jurisdictions.
Revolut Business: when paired with a US LLC, it operates under Revolut Technologies Inc. with Lead Bank as its US banking partner. The account delivered is a US account (routing + account number); no European IBAN is issued to a US LLC. The European IBANs (Lithuanian, Belgian) belong to Revolut Bank UAB and are issued to European clients of the group. If you are offered a European IBAN tied to your LLC, confirm exactly which legal entity holds that account and which regime it reports under.
Zero tax: no LLC structure delivers "zero tax" if you live in a country with CFC/tax transparency or income attribution rules. What you achieve is no double taxation and correct reporting at residence, not elimination.

Legal & procedural facts

FinCEN and IRS reporting requirements moved recently; the current state is:

BOI / Corporate Transparency Act: your LLC is NOT required to file (a competitive advantage). After FinCEN's March 2025 interim final rule, the BOI Report obligation was narrowed to "foreign reporting companies" (entities formed OUTSIDE the US and registered to do business in a state). A US-formed LLC owned by a non-resident does NOT file the BOI Report: one fewer filing on your calendar, less paperwork, and a cleaner structure than ever. If your LLC was formed before March 2025 and you already filed BOI, keep the acknowledgement. The regulatory status can change again: we monitor FinCEN.gov on every filing and, if the obligation comes back, we handle it at no extra cost. Current status verifiable at fincen.gov/boi.
Form 5472 + pro-forma 1120. For a Single-Member LLC owned by a non-resident, the final regulations of Treas. Reg. §1.6038A-1 (in force since 2017) treat the LLC as a corporation for 5472 purposes. Procedure: pro-forma Form 1120 (header only: name, address, EIN, tax year) with Form 5472 attached. It is filed by certified mail or fax to the IRS Service Center in Ogden, Utah, not e-filed via standard MeF. Due date: April 15; extension via Form 7004 to October 15. Penalty: $25,000 per form per year, plus $25,000 per additional 30 days of non-filing after IRS notice.
Substantive Form 1120. Only applies if the LLC has filed a check-the-box election to C-Corp (Form 8832): it then pays 21 % federal corporate tax and files a substantive 1120. A standard disregarded LLC does not file a substantive 1120 and does not pay federal corporate tax.
EIN and notice. Without an EIN you cannot file 5472 or BOI. The IRS does not warn before imposing penalties; you find out when an EIN is flagged or a later filing is rejected. We close it with you from Exentax: one call, the filing goes out, the archive is set, and the risk stays on paper.

Frontmen and proxies in an LLC: why it is illegal and what you really risk

Using a relative, friend or "professional service" as the formal holder of your LLC so you do not appear is the most expensive and dangerous idea circulating in tax optimisation forums. Not strategy: money-laundering offence in US, EU and LATAM, and international cooperation here runs so deep that pretending to hide the real beneficial owner no longer works technically. Real risks and why they never pay off.

Criminal offence, not tax infringement. The Corporate Transparency Act criminalises BOI false statements with up to $10,000 civil fine + 2 years federal prison. EU (5th and 6th AML directives) classifies UBO hiding as aggravated money laundering. Spain: art. 301 CP, up to 6 years. Key difference: tax sanction is money, criminal is jail and criminal record that closes bank accounts for the rest of your life. We close it with you from Exentax: one call, the filing goes out, the archive is set, and the risk stays on paper.
The proxy has contradictory incentives. Today your trusted cousin, tomorrow gets angry or divorced and the LLC is legally his. You have a private agreement worth zero before a US court (formal records prevail). Real cases: proxy withdraws funds and disappears, proxy inherits and children do not return, proxy falls into own legal problems and LLC is seized.
The system finds you three ways. (1) BOI requires real UBO under criminal threat - both signer and real UBO go to trial if discovered. (2) Bank KYC asks source of funds and operations pattern; if signer "does not know" the business, account suspended and SAR filed. (3) CRS and FATCA cross to residence - if you operate but UBO declared is another, inconsistency triggers.
Real cost of "regularising later". When discovered, no friendly regularisation: criminal proceeding against you and proxy, frozen accounts, seized LLC, cross-reported to residence (Spain: laundering + tax crime), and a firm criminal proceeding with custodial sentence if significant flow. Recovering frozen funds takes years and costs more than the intended saving.

What we are asked the most

What if my partner is sole member and I operate on her behalf? If she does not contribute capital, decisions or real distributions, structure is simulation: real UBO is you and must appear in BOI. Doing otherwise is exactly what CTA prohibits.

Are "privacy agencies" offering real nominee legal? Nominee as public manager (state) is legal and useful vs competitors. Nominee as UBO in BOI is offence. Critical distinction: first is public cosmetics, second is hiding from federal system and tax authority.

At Exentax we structure legitimate privacy (nominee manager + Wyoming + virtual PO Box) and BOI with real UBO - because legal privacy works, illegal destroys you.

We set it up without you losing a weekend

Thousands of freelancers and entrepreneurs already operate their US LLC fully legally and properly documented. At Exentax we handle the entire process: formation, banking, payment gateways, bookkeeping, IRS filings and compliance in your country of residence. Book a free consultation and we will tell you honestly whether the LLC makes sense for your case, with no absolute promises.

Why nominee structures rarely survive a careful inspection

We close it with you from Exentax: one call, the filing goes out, the archive is set, and the risk stays on paper.

Nominee arrangements look attractive on paper because they reduce the visible footprint of the real owner, but they tend to fail under any serious examination for a structural reason rather than a documentary one. Tax authorities and banks across most modern jurisdictions apply a substance-over-form principle, which means they look at who actually decides, who actually receives the economic benefit, and who actually bears the risk, regardless of whose name appears on the formation documents. When the answer to all three questions points to one person and the legal title points to another, the divergence becomes the issue itself, and every later piece of evidence (banking instructions, signatures on contracts, communications with suppliers) ends up reinforcing the same picture.

Beneficial-ownership registries add a second layer to the same logic. They are not designed to catch a particular structure; they are designed to make consistency between the legal owner and the economic owner observable on a routine basis. Where there is a mismatch, the structure is not so much detected as already visible, and the cost of unwinding it is then disproportionate to whatever it was meant to save in the first place.

On the same topic

What if HMRC, the IRS or my local tax authority asks about my LLC?

It's the question every client raises in the first consultation, and the short answer is: your LLC isn't opaque, and a properly declared structure closes any inquiry in standard forms. Your tax authority can request the state Certificate of Formation (Wyoming, Delaware or New Mexico), the EIN issued by the IRS, the signed Operating Agreement, the Mercury or Wise statements for the year, the Form 5472 plus pro-forma 1120 you filed, and the bookkeeping that reconciles income, expenses and movements. If all of that exists and is delivered in order, the inquiry doesn't escalate.

What tax authorities do pursue, and rightly, is sham ownership (nominees, paper residency) and undeclared foreign accounts. A well-structured LLC is the opposite: you appear as beneficial owner in the BOI Report when applicable (verifiable at fincen.gov/boi), you sign the bank accounts and you declare the income where you actually live. The structure is registered with the state Secretary of State, with the IRS and, when European banks are involved, inside the CRS perimeter of the OECD standard.

The mistake that really sinks an inquiry isn't having an LLC; it's not attributing the income correctly in your domestic return, not declaring foreign accounts when the year-end balance exceeds the local threshold (€50,000 in Spain via Modelo 720; the equivalent FBAR / Form 8938 in the US for residents; T1135 in Canada), and not documenting related-party transactions between the member and the LLC. Those three fronts are worth closing before any request arrives, not after.

## What an LLC does NOT do

- It does not exempt you from tax in your country of residence. If you live in Spain, France, Germany or Portugal, you are taxed there on worldwide income. The LLC organises your US side (zero federal tax for non-resident SMLLC pass-through, absent Effectively Connected Income); it does not switch off your domestic taxation. The income tax is computed on the attributed profit, not on the dividends actually paid.

- It is not an offshore vehicle or a BEPS scheme. It is a US entity recognised by the IRS, registered in a specific state with physical address, registered agent and annual informational filings. Classic offshore jurisdictions (BVI, Belize, Seychelles) leave no public trace; an LLC leaves a trace in five different places.

- It does not protect you if you commingle funds. The pierce the corporate veil doctrine kicks in as soon as a judge sees the LLC and the member behaving as the same wallet: mixed accounts, personal expenses paid from the LLC, no signed Operating Agreement, no bookkeeping. Three suspicious transactions are enough.

- It does not save you social security contributions at home. If you are self-employed in Spain, France or Germany, your monthly social contribution remains identical. The LLC handles the trading side with international clients; your personal contribution is independent.

- It does not exempt you from declaring foreign accounts. Spain residents file Modelo 720 / 721; UK residents, the SA106; Portugal residents, the Anexo J of Modelo 3 IRS; Germany residents, the Anlage AUS. Those obligations belong to the individual, not to the LLC.

At Exentax we cover those five fronts every year alongside the US federal calendar (Form 5472, pro-forma 1120, FBAR, state Annual Report and BOI Report when applicable). The goal is that no inquiry finds a loose end and that the structure withstands a 5-to-7-year retroactive review.

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