Form 5471 is hard because, among other reasons, you have to figure out the meaning of the word “own.” There’s your understanding of the word. You certainly know what it means to own something. And then there’s the Federal government’s belief about what it means to “own” something for tax purposes. Uncle Sam’s view of…
Shameless Pimping The first of eleven episodes of The Form 5471 Series will go live next Friday, April 28, 2023, at noon Pacific time. People on the International Tax Lunch Mailing List get information on how to sign up (paid or free, your choice) and will get a PDF copy of the slide deck. Email…
Update, Prophesy, and Exhortation This week’s post is shorter than usual. I deliver here an Update, a Prophesy, and an Exhortation, especially if you have form 5471 problems. Update: Important Tax Court Case The IRS lost an important Tax Court case: Alon Farhy v. Commissioner, 160 T.C. No. 6 (April 3, 2023). (Opinion here as…
In our last thrilling episode of The Form 5471 Files, we considered the curious case of a U.S. manufacturer that sold widgets to its lower-tier foreign subsidiary, which turned around and sold the widgets to an unrelated U.S. customer. The result, we decided, is that Foreign Subsidiary’s profit was foreign base company sales income, which…
When will a CFC’s regular-looking business income from regular-looking, normal business operations be classified as Subpart F income? This week I introduce the concept of “foreign base company sales income” with a simple example, which happens to come from a CPA who asked me about a situation he is dealing with. I distilled the fact…
We need to identify the shareholders of a “reporting corporation” and if we find one or more “25% foreign shareholders” they are listed in Form 5472, Part II. This discussion deals entirely with the problem of family attribution: when do you pretend that one family member’s stock is constructively owned by another family member? Let’s…
Introduction We have default assumptions about everything. “Unless proven otherwise, X is true.” For U.S. taxpayers who own stock of controlled foreign corporations, the default assumptions for how CFCs behaved shifted abruptly in late 2017. This was a geomagnetic reversal, the tax equivalent of the magnetic North Pole and magnetic South Pole flipping places. The…
The Scenario A nonresident owns 100% of the stock of a foreign corporation, which holds highly appreciated foreign real estate. The nonresident plans to become a U.S. resident (and therefore taxpayer) starting on January 1, 2024. He wants to keep the real estate, and for tax and expense reasons in his home country, dissolving the…
This article looks at Form 5471 filing requirements for Category 2 filers. These are United States persons serving as officers and directors of foreign corporations. The lesson of this post is: If you take only one lesson away from this article, it is this: Reorganizations are treacherous and it takes a lot of work to…
Form 5471 exists because Subpart F (IRC §§951-965) exists. Or to be more precise, Form 5471 exists because Subpart F exists and taxpayers are smarter than the government–but eventually even the government catches on. Why Subpart F Exists Subpart F (or to be more precise, United States Code, Title 26, Subtitle A, Chapter 1, Subchapter…
One favorite way to wiggle out of any responsibility is to mooch off someone else’s hard work. Form 5471 filing is no exception. Go look at Item H on the first page of Form 5471. Joint Form 5471s are a thing. And specifically they are a thing for U.S. officers and directors of a foreign…
Legal Authority This method of joint filing for Category 2 filers is described in Reg. §1.6046-1(e)(3). Introduction Start With the Filing Requirement Trigger Start with the assumption that you have identified two Category 2 filers who have identical reporting requirements that have been triggered by Reg. §1.6046-1(a)(2): A United States person has acquired stock in…
You’re right, but why are you right? A lot of the things you just “know” are right. But you don’t know why you’re right. This little blog post tells you why a U.S. citizen living abroad can be a trustee of a domestic trust and the trust will still be classified as a domestic trust….
This blog post describes a situation when there is an exception in the attribution rules so that one spouse is not considered the owner of the other spouse’s stock in a foreign corporation. There are, of course, exceptions when someone is a nonresident alien spouse. This can have real-world impact: what you assume is a…
General Information about “Covered Expatriate” Status There are three triggers that can cause you to be a covered expatriate. You only need one to be a covered expatriate. A covered expatriate is someone who answers “No” to one or more of these questions, as of the date of formal termination of permanent resident visa or…