Discussion:Retroactive 1120 return
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Discussion Forum Index --> Tax Questions --> Retroactive 1120 return
| 22 June 2006 | |
| I am preparing a Federal and 2 state tax returns for a multinational corporation and in doing the accounting, I am prepared to take the following position on some items...please give input if you think this is appropriate:
Cash basis taxpayer, so no a/r, a/p or customer deposits No deduction for depreciation as all f/a are in Canadian corporation No deduction for salaries, wages, etc. except for COGS labor as all employees are Canadian and paid through the Canadian corporation No deduction for interest expense as loans and notes payable are secured by Canadian corporation and/or Canadian shareholders Other G&A expenses allocated to US sales versus Canadian sales such as vehicle expenses, office expenses, etc. Facility expenses also allocated to US sales versus Canadian sales The reason for this is that prior to 2006, the Canadian corporation was not a legal entity in the US and I am required to file prior year tax returns but have had no assets/liabilities/equity in the US; all income and expenses were reported in the Canadian corporation, but to recreate the net income or loss, I need to allocate appropriate expenses for 2004 and 2005. Thank you!!! | |
| 22 June 2006 | |
| Working on this return, the Canadian corp had an NOL of 431K in 2005, but with the stratification of the expenses as above, for the US entity, I am showing a gain of 360K. Most of my clients losses are due to capital expenditures and depreciation of those expenditures as well as salaries for officers, bad debts and employee benefits in Canada. I am getting nervous about claiming 360K in income for the percentage of the total sales in the US and would love to see some more agressive ideas of how to allocate some additional expenses to the US. | |
| 22 June 2006 | |
| Why couldn't you legitimately claim a deduction for management expenses on a pro rata basis of US sales to total sales? | |
| 22 June 2006 | |
| This is where transfer pricing comes in. Depreciation of plant and equiptment is a legimate part of cost of goods. On the other hand, if the US Operation wasn't profitable, would it exist? You also need to be careful about creating a personal income tax liability in the US. I think aggression should come from the Canadian accountant. | |
| 22 June 2006 | |
| Jr...I could if the prior accountant had claimed management income; but the returns are filed and he refuses to amend them. The transfer pricing Dennis I hope to have my client accept and adhere to the pricing strategy that I have put into place for him. I am sure not a big 4 firm, but I have come up with some solutions about the risks involved for him in Canada and have input some figures to allow for depreciation, etc. in the transfer price methodology...however, if the Canadian accountant refuses to help in this situation, then I don't see how I can apply transfer pricing to prior years. The transfer pricing uses contemporaneous documentation and since we had no entity in 2004 and 2005, a transfer pricing technique is not possible since we had no entity/no documentation.
I agree that the US operation is profitable; it is from the mismanagement of funds in Canada which have resulted in a deficit for the past few years. Even if I write off some depreciation for property used for the production of income in the US, this will still leave me with a net profit. I am concerned about a personal tax liability as well...I will try once again the Cdn accountant and see if he can lend any more input, but basically he has said he wants no part of the accounting for the US entity.... Thank you both for your help and support :) | |
