Retroactive 1120 Tax Return

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Tax Return for Prior Non-entity Return

This topic is generated for the purpose of understanding and applying principals of accounting for a corporate return where the corporation was not identified as an entity for tax purposes for the tax filing years.

How to complete Form 1120 for a multinational corporation not in existance for the filing years

The main problem that I am facing with this is with a multinational corporation which did not have a reportable presence in the US for prior years but due to a multistate tax disclosure process, the states and Federal government are requiring this corporation to file income tax returns for periods in which the corporation did business in the US without reporting the income in the US.

The major focus of revenue for this corporation is sales of tangible personal property in the US and then servicing this property to US customers. Sales tax became an issue as did nexus creating activities whereby the individual states and the Federal government proposed to settle the back taxes without penalties if prior year returns are filed in accordance with the laws of the US and the various states within the US.

The corporation filed tax returns in it's country of origin (Canada) and filed these returns based on worldwide income. Now that the US government and the state taxing authorities are involved, this complicates the process in that only some of the expenses can be allocated to the US based on operating a business within the US.

Here comes the tricky part: The corporation needs to file these tax returns by August 10, 2006 and even though the Canadian corporation has a large NOL for these years, the US corporation as it is unable to benefit from all the expenses paid by the Canadian corporation will be subject to a large net income figure.

Transfer pricing needs to be addressed as well as how to file tax returns for an entity that was not actually an entity in prior years. The date of incorporation for the business is 1/1/06, but we are filing tax returns for a business that was not incorporated but had income for 2004 and 2005. As well, there is no balance sheet nor any equity as stock was not issued by the corporation until it's existence.

Hopefully, this topic will help apply some agressive techniques to help write off this income. In 2004 alone, this corporation was doing in excess of 2 million dollars in sales to the US and had net income in excess of 500K using the allocations that are reasonable. How do we then allocate additional expenses without contemporaneous documentation such as transfer pricing or any assistance from the Canadian accountant to be able to decrease some of this taxable income?

I would like to see people add to this article in terms of wholly owned subsidiary versus entity owned by Canadian citizens, transfer pricing methodology and how to do a transfer pricing study without spending 10's of thousands of dollars, how to structure the internal accounting to allow for some increase in capital write off's without investing large cash amounts for f/a in the US, etc.

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