The
JacobsReport
is a free email newsletter that will discuss investment, business, tax
and financial planning in an international context. Reports will be
issued
as the author's work schedule permits, but will usually be issued on a
weekly schedule.
Foreign
Corp. Owned by U.S. Pension Plan
QUESTION: A corporate client of ours
in the USA
has a
qualified money purchase pension plan that has formed a wholly owned
offshore subsidiary.
This is a Mauritius
corporation which was formed to own offshore investments which are not
producing any current income. Please advise what forms should be filed,
if
anything.
REPLY: If the foreign
corporation is not eligible to be a disregarded entity,
the U.S.
shareholders are required to file Form 5471 each year with their tax
returns
and to file Form 926 in each year when there is a transfer of assets to
the
foreign corporation. Other forms might be required (such as the Form
8621 for
foreign mutual funds - aka PFICs - that are owned by the foreign
corporation) depending on the circumstances.
If the foreign corporation is eligible to be treated as a disregarded
entity,
the U.S.
owner can make an election on Form 8832 within 75 days after forming
the
entity. If that is done, a Form 8858 will be required instead of the
Form 5471.
But for a tax exempt entity, it may be better to file as a corporation
so that
the exempt entity has less chance of having unrelated business taxable
income
-- which could result in tax problems for the exempt entity if the
foreign corporation
might become involved in an active trade or business.
The FBAR Form TDF 90-22.1 will have to be filed regardless of which
approach is
taken.
Vern Jacobs