What forms must a foreign-owned U.S. S corporation use when filing tax returns?
A small-business corporation (S corporation) is defined under Section 1361(b)(1)(C) of the Internal Revenue Code as being a domestic corporation that does not have a nonresident alien as a shareholder. So, while a foreigner who is a U.S. resident can own shares in an S corporation, a foreign individual who is a nonresident alien, or a foreign corporation, cannot be an owner of an S corporation.
U.S. C corporations file Form 1120, U.S. Corporation Income Tax Return, to report taxable income or loss.
Every foreign corporation that is engaged in a trade or business in the United States is required to file a Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, even if the foreign corporation has no U.S.-source income or all of its income is exempt from tax under the terms of a tax treaty.
Additionally, there is Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, which is used to disclose reportable transactions by a reporting corporation with either a foreign or domestic related party.
All of these forms can be found on the IRS’s website, and a CPA can provide more detailed advice regarding entity structures available to foreign investors.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.
Answered by: James G. McGrory, CPA, and Stephanie K. Otake, CPA, are with Drucker & Scaccetti in Philadelphia.