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i just set up a c-corp, i wanna know can i transfer 100% ownership

to a canadian citizen? he...
i just set up a c-corp, i wanna know can i transfer 100% ownership to a canadian citizen? he is not u.s citizen nor resident. any tax form i need to file for the transfer?
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Answered in 15 minutes by:
11/1/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,886
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.

Robin D. :

Unfortunately no.


To qualify for S corporation status, the corporation must meet the following requirements:




  • Be a domestic corporation



  • Have only allowable shareholders



    • including individuals, certain trust, and estates and



    • may not include partnerships, corporations or non-resident alien shareholders





  • Have no more than 100 shareholders



  • Have one class of stock



  • Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.


Robin D. :

A C corp, so sorry. Shares are freely transferable.

Robin D. :

If you are selling the shares then that is a a sale you would report when you file your return.

Robin D. :

If you are looking to transfer the shares as a gift, you would need to report that on form 709 as a gift. You may or not have gift tax to pay depending on the value of the shares.

Robin D. :

So sorry about the first info on S corp.

Robin D. :

Must be late for me.

Customer:

is there a problem if he is the only shareholder running the corporation. and he is not u.s citizen nor resident

Robin D. :

No that is not a tax problem. C corps are not like S corps and do not limit the owners

Customer:

this is a restaurant business. since he is the owner of the restaurant, does it means he has to get compensated? w2 or 1099-misc?

Robin D. :

A ccorp is taxed on its own first and then the dividends paid to the shareholders are also taxed. If he is not performing services then he would not have to receive wages (again like in an S corp that requires salary paid to 100% owner)

Robin D. :

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

Customer:

what if he wants to get 1099-misc for consulting service he provided to run the restaurant? does it sound logic to you?

Robin D. :

He would not get a 1099 MISC as a consultant especially if he is 100% owner.

Robin D. :

He can receive a wage and receive the W2.

Customer:

i see. is dividend required to be distributed to him if there is a profit?

Customer:

but he is not u.s citizen nor resident, dont have s.s number, how can he get w2?

Robin D. :

He would need an ITIN (Individual Tax Identification Number)

Robin D. :

He will need this for thetransfer

Robin D. :

anyway

Robin D. :

Even if a 1099MISC was issued he would need the ITIN for that

Customer:

so he can get w2? he doesnt have working permit or visa to work in U.S though

Robin D. :

He can be employed in Canada by the restaurant

Customer:

i dont understand that

Robin D. :

Another expert said he thinks the 1099MISC woudl be alright

Customer:

but i thought you said if he is the 100% owner, 1099-misc is not right

Robin D. :

If he is not in the US but still providing a service to the business then that is no different than being here

Robin D. :

I felt I shoudl just tell you what another expert told me. I think it is risky but they said they did not see it that way.

Customer:

is another expert CPA?

Robin D. :

Not this one

Robin D. :

That does not mean they are wrong or I am wrong

Robin D. :

it just means I am being more cautous

Robin D. :

cautious

Customer:

so what is the right procedure/steps?

Robin D. :

If he is working for the C corp then he is an employee. It would seem illogical to claim 100% owner is just an adviser

Customer:

so here is the case. eventually he will be the 100% owner after i made the transfer.

Customer:

i wanna know should i issue him a w2 or 1099? or none?

Robin D. :

If he is not owner yet the 1099MISC is more than OK

Customer:

so not w2, not 1099-misc. is that what you mean?

Customer:

only 1099-div?

Robin D. :

I mean if he is not the owner then you can and should issue him a 1099MISC if he is consulting and you pay him more then $600 for doing so.
When he becomes the owner then he would receive a W2 and 1099DIV (providing he receives distributions over the wage amount) for the distributions of profits

Customer:

but i thought Corporation can not issue w2 to him because he is not u.s citizen nor resident, and dont have working permit or visa to work in u.s, and dont have s.s#

Robin D. :

Many US non citizens earn income from US sources, they are not resident in the US and they do not have work permits or SSN.

Customer:

but how can corporation issue w2 to him if he doesnt have s.s#

Robin D. :

ITIN is required

Robin D. :

Individual Taxpayer Identification Number

Customer:

i was told my CPA, w2 can not be issued to him.

Customer:

by my cpa

Robin D. :

How was the CPA going to issue a 1099DIV or MISC without any number? The individual will need the ITIN

Customer:

She did told me about ITIN, but she told me W2 can not issue to him even if he has ITIN. because he is not authorize to work in US.

Robin D. :

He woudl not be working in the US he is working in Canada

Customer:

what you mean?

Robin D. :

He is in Canada correct

Customer:

he is in u.s

Robin D. :

Sorry , your initial post said "he is not u.s citizen nor resident"

Customer:

he is not, but he is in u.s. he told me he can come to u.s with candian passport

Customer:

he is Canadian citizen but stays in u.s

Robin D. :

So he wants to "visit" and you would transfer the shares to him, he then wants payment for consulting but ....

Robin D. :

Stays in US

Robin D. :

For how long?

Customer:

let me find out

Robin D. :

That is fine. I think we got off your initial question anyway

Robin D. :

You asked can you transfer

Robin D. :

Yes

Robin D. :

You can

Robin D. :

You will need to either report as sale or gift

Robin D. :

If you are just giving him these shares then you will report using 709

Robin D. :

If you have not used up your lifetime credit (little more then $5mil) you will not owe gift tax

Robin D. :

When you find out more about him you will want to post any question relating to his tax responsibilities then.

Customer:

so he will be in u.s for 3 months or so, then go back to canada, and come back to u.s within 1 month

Customer:

so as you said, he can apply for ITIN by filling out W7. correct? and then from there, Corporation can issue him a W2?

Robin D. :

That is correct

Customer:

how can i notify IRS regarding change of ownership from me to him?

Robin D. :

Sale or gift reporting notifies the IRS. The attorney would take care of any legal transfers then.

Customer:

i thought i have to write a letter or something to let IRS know owner is changed

Robin D. :

The filing you report for sale or gift would do that

Customer:

so in order to file 709 form, he will need to have ITIN first

Robin D. :

No, you can give away anything to a nonresident alien without them having an ITIN

Customer:

oh. so ITIN is only for Corporation to issue W2 to him?

Robin D. :

The ITIN is for US tax reporting (which he will need for the C corp ownership) and for teh C corp to issue him any documents

Customer:

is the corporation tax return with foreign shareholder/owner (1120) is the same as its owned by u.s owner?

Robin D. :

The C corp pays its own tax using the 1120 and it is no different than for a US ownership

Customer:

so his w2 is also gonna be same as the u.s resident? does he file 1040NR or 1040?

Robin D. :

It depends on his residency status and time here

Customer:

for filing w7 purpose

Robin D. :

for filing the 1040 vs 1040NR

Customer:

i mean when he file w7, doesnt he need to file a individual tax return with it? is it 1040 or 1040NR

Robin D. :

The 1040 or the 1040NR depends on if he is a resident alein or a nonresident alien

Customer:

In this case, he is candian citizen, so nonresident alien, right?

Robin D. :

Not necessarily and I am afraid I have to remind you of the need to stay on your specific question. Just Answer requires that I remind you to post a new question when your question changes from the original.
I do not want to get in trouble with Just Answer

Customer:

sorry, i didnt know i need to address all my questions in one topic. because as you can see, all questions related to each other. i thought i just need to type in starting question, then we can start from there

Robin D. :

The residency of the person in question can be a complex area and requires calculating time in the US.

Robin D. :

Just because he is a Canadian citizen does not mean he is not a tax resident of the US

Customer:

so based on the days he is in u.s, correct?

Robin D. :

That is correct

Customer:

so when he apply w7, he should file 2013 tax return with it, right?

Robin D. :

That is correct

Customer:

so the transfer can be done without ITIN, but w2 has to wait until he got his ITIN.

Robin D. :

Yes

Customer:

thank you

Robin D. :

You are most welcome.
Your positive rating is always thanks enough.

Customer:

i will

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,886
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
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Category: Tax
Satisfied Customers: 15,886
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Experience: 15years with H & R Block. Divisional leader, Instructor

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