Reporting requirements for your interests in foreign corporations

Reporting requirements for your interests in foreign corporations

A US person may have international tax reporting obligations to the IRS if he owns more than 10% of the shares of a foreign corporation.

US persons who may be subject to these special reporting rules include:

1) US citizens or residents serving as directors or officers of the foreign corporation.

2) US citizens or residents who acquire shares of the corporation and immediately have 10% ownership of the shares of the company.

3) a person who becomes an American while owning 10% of the shares of a foreign corporation.

In addition, any US person who “controls” a foreign corporation must file an information return with the IRS. A US person is defined for these purposes as US citizens and residents, domestic corporations and partnerships, non-foreign deceased estates, and domestic trusts. Regarding the moment in which a person acquires shares of the foreign corporation, the Internal Revenue Code establishes that the acquisition takes place when the person “has an unconditional right to receive said shares even though said shares have not actually been issued.”

What form should I use as a US person with an interest in a foreign corporation?
The IRS has designated Form 5471 as the required reporting form for US persons with interests in foreign corporations. Form 5471 is also complemented with several schedules that the taxpayer must complete according to their specific tax situation and the type of taxpayer involved. Any taxpayer subject to the Form 5471 requirement must file that form at the same time they file their income tax return.

Form 5471 Specific Rules for Different Taxpayers:

Category 2:

Category 2 taxpayers include US citizens and residents who are directors or officers of a foreign corporation. This class of taxpayers must file Form 5471 during a particular year if a U.S. person obtained shares of the foreign corporation for an amount of at least 10 percent of the corporation’s shares, either by vote or by value.

Category 3:

Another category of taxpayers subject to Form 5471 requirements are Category 3 taxpayers, which includes a U.S. person who performs any of the following actions:
acquires shares of the foreign corporation that then comprise at least 10 percent of the outstanding shares of the corporation by value or voting power;
you become a US person at any time while owning 10 percent of the outstanding shares of the corporation;
makes a stock disposal that has the effect of reducing the individual’s stakes below 10 percent by vote or by value.

Category 4:

Taxpayers subject to the Form 5471 requirement consist of any U.S. person who controlled a foreign corporation for a continuous period of at least 30 days during the corporation’s annual accounting period ending within or with the U.S. person’s taxable year. . A US person is considered to have “controlled” a foreign corporation if he owns more than 50 percent of the shares of the corporation, where ownership is determined by the implicit ownership rules of section 381 (a).

Category 5:

Persons are any person who is a U.S. shareholder of a foreign corporation for a continuous period of at least 30 days during the corporation’s taxable year, and must maintain this status on the last day of the year in which the corporation was a controlled alien. corporation. For these purposes, a foreign corporation is considered a CFC if more than 50 percent of its shares, by vote or by value, are owned, directly, indirectly and constructively, by US shareholders. Any Category 5 taxpayer must report general information about the corporation and its shares, as well as information about the corporation’s US shareholders.

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