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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22989
Experience:  Taxes, Immigration, Labor Relations
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I have a company outside the USA as well. There is money that

Resolved Question:

I have a company outside the USA as well. There is money that is technically after tax money, but still in the out of USA corporate account.

In order to transfer the $ back to the USA, I would be creating a new Wyoming S corp in the USA in the same name in order to move the $.

My question is if there is any tax implications for the S Corp for the $ that would be transferred? The money in the out of USA corp was subchapter F income so it is technically after tax income and taxes would have been paid for it in prior years.

Thank you.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
If your company outside the USA is a corporation - and that corporation will create another business entity in the US and will make a capital contribution into that entity - that will not be a taxable event. However - a corporation may not be a shareholder of S-corporation. So your Wyoming should be either a corporation or an LLC.
If you want to create a S-corporation in Wyoming - only you may be a shareholder - means - you personally should make contribution. In this case funds from the company outside the USA should be distributed to you as dividends - and as such will be taxable to you.

Customer:

The out of USA company that i solely owned would not be creating a usa co.

Customer:

I would be.

Customer:

The $ in the out of usa co. is after tax $.

Customer:

so how would my personally creating a s corp and distributing after tax $ create a taxable event?

LEV :

In this case the money should be distributed from your company outside the USA (that is a separate entity) to you personally as a shareholder.
The distribution out of retaining earnings would be classified as dividends - and will be taxed to you as a shareholder.
The next step – how you will use these funds would be irrelevant.

Customer:

As I explained, I can't wire the $ to me personally.

Customer:

The $ in the company account out of USA is After tax $.

Customer:

So how would transferring to a S corp and then to me of after tax $ going to cause tax to be paid again?

LEV :

You may transfer funds directly to the account of your S-corporation - that is not an issue. However - that will be considered as constructively received by you as a shareholder of a foreign corporation - and will be classified as dividends.

Customer:

How can it be dividends if I already paid tax on the $ as the sole shareholder of the foreign corporation as subpart F income?

Customer:

So a "dividends" are you saying it would be taxed again?

Customer:

What link to the irs code support what you state?

LEV :

Did you paid taxes personally on your tax return - or taxes were paid by the foreign corporation?

Customer:

by me personally

LEV :

In this case - when you personally paid taxes on certain amount - that amount is added to your capital account - and will be added to your basis.
The distribution from the corporation should be classified as non-dividend distribution - and will not be taxable up to the amount of your basis. But your basis will be reduced by that distributed amount.

Customer:

Can you explain in more detail, basis of what co, and so on, as I am not familiar with those terms

LEV :

Basis is generally the amount of your capital investment in a property for tax purposes. When you open your corporation - your original contribution is your basis.
For instance you contributed $10,000 - at that time - that was your basis.
Later - you might make additional contributions or taking the money out of your corporation - and your basis should be adjusted correspondingly.
There might be other situations when the basis is adjusted - for instance - if you personally pay debt obligations of the company - that amount is added to the basis.
Similarly - if you personally paid income taxes on the money that were not distributed to you - the amount of taxable income is added to the basis.
Eventually - when you will sell the company or dissolve it - the adjusted basis will be used to calculate your gain or loss.

Customer:

The company out of USA is already closed and taxes have or will be paid there personally as all income was personal.

Customer:

For the S corp, I'll be closing this year, so am I right there would be no tax due as a result of the $50k xfer to it?

LEV :

The fact of creating the S-corporation is irrelevant in determination of your tax liability.
If a foreign corporation is dissolved - that will be liquidation distribution - and your need to calculate you income or loss on that distribution. $50k will be treated as a sale price - but you still need to determine your basis for reporting purposes.

Customer:

Can you give specifics on how to do this so that I can have an idea of tax owed?

LEV :

The first step - you need to determine your adjusted basis in that foreign company - that is very important step. We need to find information about your original contribution, all tax free distribution and all amount that you included into your taxable income.
When the company is liquidated - for tax purposes all liquidation distribution is treated as if shares were sold - and the money received upon liquidation - are treated as the sale price.
If you have any gain or loss - we need to calculate (selling price) - (adjusted basis).
That transaction is reported on form 8949 - and then - you will transfer results to schedule D. Here is this form -http://www.irs.gov/pub/irs-pdf/f8949.pdf
You need to report that transaction regardless if you have any taxable gain.
Example - if your basis is $50k - and you received $50 as a liquidation distribution - there is no gain - and there is no any tax liability.
If your basis is $40k - and you received $50 as a liquidation distribution - you would have a gain $10k - and assuming you owned shares more than a year - it would be long term capital gain - taxable at reduced rate - not more than 15%.
If however - your basis is $51k - and you received $50 as a liquidation distribution - you would have a loss $1k - and that loss will be used to offset other taxable income.
Please feel free to ask if you need any help.

Customer:

If all the amount the company received was taxed at my personal rate as if it were my personal income, how does that affect the basis?

LEV :

If all the amount the company received was taxed to you personally on your personal tax return - that amount is added to basis - and most likely - you will not have any gain on the liquidation distribution.

Customer:

if there is no gain on the liquidation distribution (for the non usa corp),

Customer:

what and how would the usa s corp be treated and how would I report the transfer of funds? Just on the balance sheet or on the income statement as well?

LEV :

Your new S-corporation has no relation to the liquidation distribution.
The liquidation distribution money are treated as constructively received by you.
And your contribution into the S-corporation will be your basis in shares of that S-corporation.

Customer:

Let's say $50k goes to the S-Corp. Then $50k goes to me personally. That was $ distributed from the already paid tax $ from the out of usa corp. Then what would be bal sheet, p&L and tax owed (assuming no other expenses)?

LEV :

We are not discussing your foreign corporation - correct? Assuming we are clear on that?
So - you will make $50k original contribution to the S-Corporation - and some time later will take distribution of all or part of these money. There will not be any taxable transaction - but that will reduce your capital account to zero.

Customer:

How would it be listed in the P&L for the tax return and balance sheet?

LEV :

There will not be anything on the tax return for the S-corporation - because that is not a taxable income.
On the balance sheet - that will be paid in capital account - assuming cash.

Customer:

You mean (assuming no other movements other than the $50k), profit $0, expenses $0, and balance sheet paid in capital $50k, and paid out capital $50k? How will the paid out capital be shown if the $50k goes in one month and out 3 months later (same year)?

Customer:

Thank you

LEV :

If that amount will be contributed and distributed during the same reporting period - the balance will be zero.

Customer:

ok, thanks!

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22989
Experience: Taxes, Immigration, Labor Relations
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Taxes, Immigration, Labor Relations