Dormant Foreign Corporations

A Controlled Foreign Corporation (“CFC”) is, in general, a foreign corporation controlled by a U.S. person(s) through ownership of stock.  A U.S. person owning at least 10% of a CFC has a reporting requirement for an annual information return of Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations.  Depending on how the U.S. person is affiliated with the foreign corporation determines which category filer they are as well as which schedules are required to be submitted with Form 5471.

If the foreign corporation is dormant, the filer may use summary filing procedures provided by IRS Revenue Procedure 92-70 (1992-2 C.B. 435).  For this procedure, the IRS determined that a foreign corporation is deemed to be a dormant foreign corporation if at all times during the foreign corporation’s annual accounting period (within the meaning of section 6038(e)(2)):

1. the foreign corporation conducted no business and owned no stock in any other corporation other than another dormant foreign corporation;
2. no shares of the foreign corporation (other than directors’ qualifying shares) were sold, exchanged redeemed, or otherwise transferred, nor was the foreign corporation a party to a reorganization;
3. no assets of the foreign corporation were sold, exchanged, or otherwise transferred, except for de minimis transfers described in (4) and (5) below;
4. the foreign corporation received or accrued no more than $5,000 of gross income or gross receipts;
5. the foreign corporation paid or accrued no more than $5,000 of expenses;
6. the value of the foreign corporation’s assets as determined pursuant to U.S. generally accepted accounting principles (but not reduced by any mortgages or other liabilities) did not exceed $100,000;
7. no distributions were made by the foreign corporation; and
8. the foreign corporation either had no current or accumulated earnings and profits or had only de minimis changes in its beginning and ending accumulated earnings and profits balances by reason of income or expenses specified in (4) or (5) above.

Original content posted on https://www.christopherbyrne.com/dormant-foreign-corporations/ 

New York Utilizing Electronic Data Records for Tax Audits

Taxpayers claiming residency outside of New York while maintaining ties to New York, such as an apartment, room, or other ties in New York, may be exposing themselves to a New York tax audit.  In general, the taxpayer has the burden of demonstrating by clear and convincing evidence that the taxpayer was not present in New York for more than 183 days.

With today’s available technology electronic records are readily accessible to provide evidence which reflects the days the taxpayer is in New York.  Examples of the records the New York State Department of Taxation and Finance (“DTF”) requests includes credit card/bank statements, EZ pass toll invoices, travel itineraries, personal calendars, etc.  Even simply logging onto an employee computer terminal leaves evidence of your whereabouts.

The DTF regularly requests records directly from electronic data sources in an effort to refute days where the taxpayer has contended that s/he was not present in New York on a given day.  For example, the DTF may request cell phone records directly from the service provider; each outbound and inbound call requires a connection to a cell phone tower, which may be used to triangulate the taxpayer’s position on any given day.

The use of electronic data records to prove residency requires taxpayers to exercise due diligence to insure that they are aware of their days present in New York.

Original content posted on https://www.christopherbyrne.com/york-utilizing-electronic-data-records-tax-audits/