Discussion:5471 issue: Japan Limited Company
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Discussion Forum Index --> Tax Questions --> 5471 issue: Japan Limited Company
| 7 May 2007 | |
| I have a client who is an owner of a Japanese limited company, namely yuugengaishi in Japanese. Is it considered as foreign corporation for 5471 purpose which might trigger the filing of this form? I kind of heard that the check-the-box rule might make this entity not become a foreign corp for this purpose?? Anyone had prior experience in these? Many thanks | |
| 7 May 2007 | |
| Apparently, On 5/1/2006, all existing Yugengaishi's were converted to Tokurei Yugen Kaisha's which are eligible entities for which a check the box election to be taxed as a corporation is available. See Rev. Ruling 2006-3. | |
| 7 May 2007 | |
| Presumably, if the check the box election is not made, the taxpayer must file a Form 8865 (controlled foreign partnership). | |
| 30 May 2007 | |
| So if my client (a US citizen) is the single owner of this yugenkaisha, is it that there would be no filing requirement for 8865 or 5471 forms? | |
| 30 May 2007 | |
| As Riley says, in 2006 YKs were converted to TYKs. Rev. Rul. 2006-3 says that TYKs are not "per se" corporations. This means that they are eligible entities and can be treated as partnerships or disregarded entities. My understanding is that TYKs have limited liability. Because the owners of a TYK have limited liability, the entity would default to being treated as a corporation unless an entitiy classification election (a.k.a. "check the box" election, Form 8832) was made.
If your client owns more than 50% of the TYK and no entity classification election has been made, then Form 5471 would be required annually. If your client owns more than 50% of the TYK and such an election has been made, then Form 8865 or Form 8858 would be required annually. The penalty for failing to file each of these forms is US$10,000. | |
| 31 May 2007 | |
| Thank you for above. Just to make sure - since my client is a single owner, so in his case it could be elected to be treated as a disregarded entity, and the income/loss will flow to his 1040 without additional 8865 or other informaion reporting filing requirements? | |
| 31 May 2007 | |
| Sorry, I stand corrected. As IntlTax indicates, a foreign eligible entity is a corporation if all of the members have limited liability, unless a check the box election is made to elect out of corporate status. Therefore, if no 8832 election is made, a 5471 would be required for this entity since it defaults to a corporation. | |
| 31 May 2007 | |
| Axia, if your client makes a check the box election, then your client will be required to annualy file Form 8858 and the income/loss from the TYK will flow directly to Form 1040. Note that the election to convert the TYK from corporation to disregarded entity will be treated as a taxable liquidation. Your client may recognize subpart F income as a result of the deemed liquidation. In addition, gain recognized may be characterized as ordinary income under Sec. 1248. | |
| 1 June 2007 | |
| As my client is the single owner of a very small business (office staionary design) with no complicated transactions and is currently making losses, what would be the drawbacks/disadvantages and advantages by making the election and have the income/losses flow to his 1040 in offsetting against his other interest/dividend income or generating NOL, rather than filing 5471s (probably generating subpart F income which might eventually flow to his 1040 anyway?) Any related issues from his personal tax and his YK tax perspectives that he needs to be concerned about for the options between making and not making the election? Once he makes the elections, any adverse consequences if he switches it back to corporation status in future?
Provided the small size of his business, he might prefer any strategies that might simply the tax reporting process and its costs (he needs to pay his Japan tax accountant to do the Japan corporate tax filings/accounting works as well) | |
| 6 February 2008 | |
| Hi guys, to bump this thread I got a question:
We currently have a client who is a YK/TYK. They have elected on form 8832 to be classified as a disregarded entity, single owner. This was in 2006 Now, they want to change to a corporation (Kabushiki Kaisha), which means that they would no longer be an eligible classification and could no longer be a disregarded entity. Would they be grandfathered in or would there be some sort of technical termination of the 8832 election or...? As explained to us by the client, the change from YK -> KK would more or less be a conversion. No new company would be formed. I have scoured Reg. 301.7701-3 and Reg. 301.7701-2 but could not find a conclusive answer. Any help here is appreciated. | |
| 6 February 2008 | |
| Er sorry, to clarify. Japanese YK is 100% owned by domestic corp. | |
| 7 February 2008 | |
| The conversion to a KK will be treated as an outbound transfer in a Code § 351 exchange to a newly formed corporation. You need to look at Code § 367 to see if gain is recognized on the assets being transferred. Other rules that may apply include, branch loss recapture, dual consolidated loss recapture, OFL recapture. The outbound of assets needs to be reported pursuant to Code § 6038B (Form 926 & statements). A Form 5471 will be required for the new corporation and a final Form 8858 will be required for the final period of the disregarded entity. There may be other important items as well. | |
