Questions about Form 5471

Not a response to your question, but you would have file form "Form TD F 90-22.1" if at any point during the calendar year your 6% investment crosses $ 10,000 in value. (Independent whether it pays dividend or not). This form needs to be filed before June 30th.

Well the IRS got this one right. You report stock dividends on Line 9a of Form 1040. As to whether these dividends are qualified dividends that you can also report on Line 9b, will depend on passing at least one of three tests.

1. The foreign company was incorporated in a US possession.
2. The stock is publicly traded on a US securities market.
3. The company is eligible for benefits under an income tax treaty with the US and the treaty has an exchange of information provision.

Under test 3, there is an IRS Notice that contains a list of those countries. See the link below for the Notice.

That's the beauty of corporations. The corporation's own tax return is complex, but yours isn't.

So if I own $25,000 in a foreign company, say Nestle, then do I have to file the TDF form?

No. That assumes that you own the stock through a US securities account. I have clients who have securities accounts in other countries, and for those, even if they were invested in US companies, they need to do the TD form. The key is where the financial assets are held, not the country where the underlying company is located. So if you have a stock certificate for a foreign company in your safe deposit box, no reporting; but if the company holds your investment "in street name" or on its books with no certificate, then, yes, you might need to file the TD Form.

ysmum had written this in response to

------------------------------------- Alan wrote:

Thanks Alan! You've been a great help!

I only received a letter saying that I own one ordinary share of their stock. I don't have a foreign securities account which holds the stock for me. Does that mean I don't need to fill out Form TDF?

The country is British Virgin Islands so I think it fulfills test 3 since the United Kingdom is listed there. So does that mean I also that dividend income will only be taxed a maximum of 15%?

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My understanding of the filing requirements are that mere ownership of stock in a foreign corporation does not trigger the filing requirement. Ownership of more than 50% of the company would trigger the requirement. In addition, if the value of your stock exceeds $10K and the stock is not in your possession or your broker's possession in the US, i.e., it is held in a foreign account or held by the foreign corporation in your name, you have a filing requirement.

I do not believe that the US income treaty with the UK encompasses the BVI. In addition, even if it did, as the BVI has no corporate income tax, I don't see how a corporation could avail itself of any treaty benefit. The BVI has always been considered by the US to be an offshore tax haven. I believe the signing of the Tax Information Exchange Agreement (TIEA) with the US was an effort by the BVI to show it was not a haven. The TIEA is not considered an income tax treaty for purposes of being categorized as a qualified foreign corporation.

A routine search tells me that the only income tax treaties with the BVI are the UK treaties with Japan and Switzerland as they elected to include the BVI.