If you just received a CP282 notice or a CP288 notice from the IRS, your first reaction was probably stress. IRS notices tend to do that. The good news is that in most cases, this notice is informational, not a penalty, and it does not automatically mean you owe taxes.
That said, you should never ignore an IRS notice.
These notices are commonly sent to foreign-owned, multi-member LLCs that file Form 1065 and report foreign partners on their Schedule K-1s. If that describes your situation, keep reading. This article explains what the notice means, why you received it, when it actually applies, and what to do next.
Who This Notice Is For
The CP282 and CP288 notices are directed at multi-member LLCs with foreign partners. Typically, this includes non-US persons who live outside the United States and own a US LLC together.
For example, Bob and Sally both live in Costa Rica. They form a US multi-member LLC and each owns 50 percent. Even if the business operates entirely outside the US, the partnership is still required to file Form 1065 every year.
Once you file Form 1065 and indicate that there are foreign partners on the K-1s, the IRS system automatically generates this notice.
That part is critical. You can receive this notice even if you did everything correctly.
When Additional Filings Are Required
Additional filings apply if the partnership has effectively connected income allocable to foreign partners.
When this happens, the partnership must withhold tax under IRC Section 1446. This withholding is generally calculated at the highest individual tax rate, currently 37 percent.
The partnership must then file the following forms:
Form 8804 to report the withholding
Form 8805 to report each foreign partner’s share
Form 8813 to remit the tax payments
This situation most commonly arises with US real estate.
Common Real Estate Example
Imagine two foreign partners who own a US rental property through a multi-member LLC. The property generates $100,000 in taxable income.
Even if no cash is distributed, the partnership is required to withhold 37 percent of the allocable income to foreign partners. That means $37,000 must be withheld and paid to the IRS.
Later, each partner can file a US tax return to calculate their actual tax liability and request a refund if they overpaid.
This is not a do-it-yourself scenario. If you own US real estate through a partnership, professional tax help is essential.
Why Most Online Businesses Do Not Owe Anything
For digital businesses operating entirely outside the US, this withholding requirement usually does not apply.
Online marketing agencies, consultants, ecommerce sellers, and software companies performing services abroad generally do not generate effectively connected income.
That is why many foreign-owned LLCs receive CP282 or CP288 notices even though no additional tax is due.
The notice is triggered by foreign partners, not by income.
Why the Notice Should Still Be Taken Seriously
Even if you believe you have no US source income, ignoring the notice is a mistake.
The IRS is signaling that it expects you to understand and comply with the rules. If your facts ever change, or if the IRS later determines there was US activity, penalties can be severe.
This is why documentation and defensive filings matter.
How We Handle This for Clients
For clients with substantial revenue flowing through a multi-member LLC, we often file Forms 8804 and 8805 showing zero effectively connected income.
This creates a clean paper trail. If the IRS ever questions the structure, the filings demonstrate compliance and eliminate exposure to failure-to-file penalties.
For very small amounts of income, we generally do not file these forms. The cost and administrative burden outweigh the benefit.
For large profits, US real estate, or complex structures, we file defensively every time.
Form 1065 and K-1s can be filed electronically. Forms 8804 and 8805 must be mailed, which makes them inefficient but still necessary in the right situations.
Other Related IRS Filings
Some foreign-owned structures trigger other withholding obligations, such as Forms 1042 and 1042-S. These typically arise from dividend income, brokerage accounts, or passive US source income.
This is another area where professional guidance matters. These filings are complex and mistakes are expensive.
What To Do If You Received This Notice
First, do not panic.
Second, confirm whether your business has any US trade or business activity.
Third, review your filings to ensure they accurately reflect your operations.
If you are unsure, this is exactly the type of situation where a short professional review can save you years of problems.
If you have been paying US taxes as a non-resident when you should not have been, refunds may be available.
Final Thoughts
CP282 and CP288 notices are common for foreign-owned multi-member LLCs. Most recipients do not owe additional tax. The notice exists to alert you to potential obligations, not to accuse you of wrongdoing.
Handled correctly, this is a manageable compliance issue. Handled incorrectly, it can turn into penalties, audits, and unnecessary tax payments.
If you want help reviewing your situation, resolving the notice, or setting your structure up properly from the start, you can schedule a call with our team.
Address it correctly now and you avoid bigger problems later.
