What forms must a foreign-owned U.S. S corporation use when filing tax returns?

by James G. McGrory, CPA, and Stephanie K. Otake, CPA | Nov 30, 2018

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.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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