The reporting requirements for IRS Form 5471 are complex, including “categories of documents” and required timeframes. However, few taxpayers know that there are special simplified reporting rules for inactive foreign companies.
The yet to be published IRS revenue procedure 92-70 contains seven specific conditions that a foreign company must meet to be considered dormant:
- The foreign company does not operate or own shares in any company other than another inactive foreign company.
- The shares of the foreign company (other than those of the qualified directors) have not been sold, exchanged, redeemed, or otherwise transferred, nor has the foreign company participated in any reorganization.
- Except for the minimum transfers described in paragraphs 4 and 5 below, there is no sale, exchange, purchase, or other transfer of the assets of the foreign company.
- The gross or gross income received or accumulated by the foreign company does not exceed $5,000. The fees paid or accrued by the foreign company do not exceed $5,000.
- The value of the foreign company’s assets (but not net of mortgages or other liabilities) as determined in accordance with US GAAP does not exceed $100,000.
- The foreign corporation has no current or accrued income and profits, or only minor changes in its opening and closing accrued income and income balances, as a result of the income or expenses described in paragraphs 4 or 5 above.
If your foreign corporation meets all of the above requirements, you only need to complete page 1 of Form 5471 for each dormant foreign corporation, this includes your name and address, tax year, identification number, applicant category, and where you are located. You would also indicate the percentage of voting shares in the foreign-owned company at the end of the annual reporting period.
If you are filing Form 5471 for your dormant corporation, you must indicate at the top of the document “Filed under Rev. 92-70 percent for dormant foreign corporations.”