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Question for a Tax Attorny who Knows US tax Laws regarding…

Question for a Tax Attorny...
Question for a Tax Attorny who Knows US tax Laws regarding Foreign Companies ?
My company is a Cayman Company (#1) (Foreign) owned by USA Citizens (2).
Company (#1) filed IRS Form 8832 to be Taxed as A Partnership under USA Tax Laws.
(#1) files its taxes and pays Tax on all of its Income.
Now (#1) has obtaining a Subsiduary Company (#2) formed in the Caymans.
(#2) is a Computer software Service and Support Company whis offers it Service from its Off shore Location, No
Management in the USA, Everthing from Offshore.
? How do we report this Company (#2). Income as dividends as received ? What IRS Forms , if any are required to be filed by (31) in regardsto USA Taxes ????
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Customer reply replied 3 months ago
Mistake in last ? Not (31) What IRS Forms , if any are required to be filed by (31) in regardsto USA Taxes ????
What IRS Forms , if any are required to be filed by (#1) in regards ***** ***** Taxes ?
Customer reply replied 3 months ago
Just a Note. Company (#2) has a estimated Potential profit of $110,000 off shore Profit,
Company (#2) will pay a 15% Dividend to Copany (#1) forwarded to USA, Est $ 16,500.
So Company (#2) will retain $ 93,500. Off Shore !!
Customer reply replied 3 months ago
ANY Tax Atty's or Accountants with Informatii to Answer our Question ??
Answered in 6 hours by:
10/30/2017
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 935
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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I am not a tax attorney, but I am a CPA who has been practicing in the international tax area for over 30 years.

Your situation is pretty clear. Company #2 (Co2), if it is a corporation, will not be taxed on its income in the US. The shareholders of Company #2, which is Company #1 (Co1), taxed as a partnership, will not pay any tax on the income from Co2 until Co2 pays a dividend to its parent, Co1.

Co2 is a Cayman company, and we have no tax treaties with the Cayman Islands. So when Co2 pays a dividend to Co1, the shareholders of Co1 will have a taxable dividend reported to them on Co1's K-1 that is included with the Form 8865 (see next line).

Co1 will have to file a Form 8865, partnership tax return for a foreign partnership. This Form has a Schedule K-1 that will be given to each of the US partners to report their share of the partnership's income.

Additionally, since there is more than 50% ownership of Co2 (even though it is indirect through Co1) there is additional reporting required. Co1 will have to complete and file with its Form 8865 an informational return called a Form 5471 for Co2. This Form is complex, and it is required to be filed. There are significant penalties for failing to file this Form and ALL of the required schedules. The penalty is $10,000 per month that the company is not in compliance.

If Co2 is only paying 15% of its income as a dividend, then the remaining 85% is not taxed until it is brought back to the US through either a dividend, or a deemed dividend (a special type of income that is meant to catch "disguised" dividends, such as the foreign corp loaning the US partners cash, etc).

I hope this answers your questions, If you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great week!

Roger

taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 935
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Customer reply replied 3 months ago
Another related question ?
Company (1) has obtained EIN #, and filed 8832 As a partnership ! ? We would like to open a checking account at our USAbank ? Opinion ?
Phone call session started

I see that you requested a phone call. Did someone already answer your question? When I tried this morning it said that another expert answered it already.

Please let me know.

Thanks!

Roger

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Customer reply replied 3 months ago
No, my request was for you!
Customer reply replied 3 months ago
Roger,
Waiting to speak with You,
Thanks
Customer reply replied 3 months ago
Waiting for call

I just called. It was a pleasure speaking with you.

Please don't forget to rate me so that this question can be closed. It is still showing up as an open question that needs my attention.

Thanks!

Roger

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taxmanrog
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 935
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Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.

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