Have a Tax Question? Ask a Tax Expert
Hi and welcome to Just Answer!If you simply own shares of the Mexican corporation - generally there is no gain or loss recognized unless shares are sold.For US income tax purposes - your income from the corporation may be with following situations - corporation pays you wages for services you provide to that corporation, corporation pays you dividends as a shareholder, you sell shares of the corporation and realize capital gain.It is possible that assets are distributed from the corporation to you as a shareholder - no gain is realized - but your basis is reduced by the fair market value of the asset; when your basis is reduced to zero - the difference will be your gain.
As long as you personally receive the money - it doesn't generally matter how the money are used. Thus - you may contribute proceeds to another corporation gift to another person, etc - still that will not help to avoid the tax liability. You may gift the money to your girlfriend - the gift is not a taxable income for the recipient, but the donor might be subject of US gift taxes depending on the value of the gift.
I guess what I am trying to find out is if I will be double taxed in the situation where the Mex corp sells the property and then I take the money from the sale and bring back to the US. My understanding from a US accountant was if I sold my shares of stock in the mexican corporation to the buyer of the property( stock sale vs land sale) I would only pay the capital gains tax once , that in Mexico. If I did a land sale with the mex corp, the Mex corp would pay capital gains and then I would have to pay capital gains again in the US if I repatriated the money to the US.
We need to separate YOUR tax liability and the tax liability of the Mexican corporation.You and the corporation are separate taxing entities.Corporations pays its own taxes on corporate income - and you pay your own taxes on your income.You are correct - in case of the corporation - there is double taxation.
So, what are my options in selling the property to avoid paying double taxes?
In case of the corporation - there is no options if you want proceeds to be distributed to you.If you want assets to keep in the corporation - as long as they are not distributed - income will be taxed to the corporation only.
The issue is - as soon as proceeds are distributed to you or are considered as distributed to you - that becomes your income. Regardless how you use the money.
Can the proceeds of the sale of the mexican corporation go straight to a Nevada corporation. How would that work in terms of taxes?
If Mexican corporation will own shares of a Nevada corporation - and proceeds are NOT distributed to you - that is NOT your taxable income.If you own shares of a Nevada corporation - that will be treated as distribution constructively received by you personally - and will be your income.
How does the IRS verify that capital gains were paid in Mexico?
Generally - you report that on your tax return - that is how the IRS receives information. If the IRS disagrees or needs clarification - they ask you to provide supporting documents.