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Report the foreign corporation income without form received


bungee9

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My client established a corporation in Mexico in 2021 and is 70% shareholder as of the end of 2021. But he did not receive any dividend, distribution, or salary in 2021 due to his status in that country. Then in now he is trying to get a status that he can open the bank and receive any distribution from the corporation. His company had a net income in 2021.

I question how to report his foreign source income without receiving any form and actual payment from his foreign corporation.

I am preparing forms 1116 and 5471 for this activity. As calculating tax for the foreign corporation's income on Form 1116, I am considering adding the SE Tax (15.3%) or business income tax and personal income tax. Without any form, I don't know how to calculate the business tax for this foreign source of income. If I use Schedule C to add the SE Tax, I wonder how to apply the 70% interest in a corporation on Schedule C.

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Form 1116 is for foreign tax paid. If he paid no tax to Mexico, you probably don't need Form 1116.

I'm not familiar with business entities in Mexico, but you talk about a corporation. Are you sure you would report on a Schedule C?

Are you preparing the corporate income tax returns or the personal income tax returns?

There are preparers on this forum who handle more foreign income issues, so wait for someone more expert to jump on this thread.

 

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1 hour ago, Lion EA said:

Form 1116 is for foreign tax paid. If he paid no tax to Mexico, you probably don't need Form 1116.

I'm not familiar with business entities in Mexico, but you talk about a corporation. Are you sure you would report on a Schedule C?

Are you preparing the corporate income tax returns or the personal income tax returns?

There are preparers on this forum who handle more foreign income issues, so wait for someone more expert to jump on this thread.

 

1. While he did not receive the dividend or distribution from a Mexican corporation, this company paid tax to Mexico's gov.
So, I thought that he have to report form 1116 because he is a 70% shareholder in this corp. 

2. I am currently preparing both his personal tax return and the partnership tax return in which he owns 50% interest. 
   My plan is to first report his business income in Mexico on Form 5471 and form 1116 in his personal tax return, and then
   report form 1116 to K-2 of the partnership.

3. If, as you say, he doesn't need to report Form 1116, I don't think he needs to report K-2 either. Is that correct?
    However, Form 5471 still has to be reported.

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