International Tax Series: Be Aware of the Form 8858 Filing Requirement if a U.S. Person Owns a Foreign Disregarded Entity

The Form 8858 is required to be filed if a U.S. person owns 100% of a foreign eligible entity that elects to be classified as a foreign disregarded entity for U.S. federal tax purposes.  A U.S. person that owns 100% of a foreign disregarded entity is required to file the Form 8858 as a Category 1 filer.  A U.S. person must file the Form 8858 as a Category 2 filer if the U.S. person is required to file the Form 5471 with respect to a controlled foreign corporation (CFC) and the CFC is the tax owner of a foreign disregarded entity.  A U.S. person must file the Form 8858 as a Category 3 filer if the U.S. person is Continue reading »

International Tax Series: Are You a U.S. Shareholder in a Controlled Foreign Corporation? The Basics to Know about Subpart F

A controlled foreign corporation (CFC) is a foreign corporation of which more than 50% of the vote or value of the stock is owned by U.S. shareholders who each own at least 10% of the voting stock.  CFCs are subject to Subpart F of the U.S. Internal Revenue Code which includes Sections 951 et seq.  If a CFC has Subpart F income or if there is an increase in the earnings invested by the CFC in U.S. property for the tax year, the undistributed earnings of the CFC are taxable to the U.S. shareholder on its U.S. federal income tax return before any actual dividend distribution of the CFC’s earnings is made.  Otherwise, if a foreign corporation is not a CFC, the U.S. shareholder is subject to U.S. taxation only when actual dividend distributions are repatriated to the U.S. shareholder.

Subpart F income includes certain categories of income such as foreign base company services income and foreign base company sales income.  A CFC will have foreign base company services income if Continue reading »