Dormant Foreign Corporations

A Controlled Foreign Corporation (“CFC”) is, in general, a foreign corporation controlled by a U.S. person(s) through ownership of stock.  A U.S. person owning at least 10% of a CFC has a reporting requirement for an annual information return of Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations.  Depending on how the U.S. person is affiliated with the foreign corporation determines which category filer they are as well as which schedules are required to be submitted with Form 5471.

If the foreign corporation is dormant, the filer may use summary filing procedures provided by IRS Revenue Procedure 92-70 (1992-2 C.B. 435).  For this procedure, the IRS determined that a foreign corporation is deemed to be a dormant foreign corporation if at all times during the foreign corporation’s annual accounting period (within the meaning of section 6038(e)(2)):

  1. the foreign corporation conducted no business and owned no stock in any other corporation other than another dormant foreign corporation;
  2. no shares of the foreign corporation (other than directors’ qualifying shares) were sold, exchanged redeemed, or otherwise transferred, nor was the foreign corporation a party to a reorganization;
  3. no assets of the foreign corporation were sold, exchanged, or otherwise transferred, except for de minimis transfers described in (4) and (5) below;
  4. the foreign corporation received or accrued no more than $5,000 of gross income or gross receipts;
  5. the foreign corporation paid or accrued no more than $5,000 of expenses;
  6. the value of the foreign corporation’s assets as determined pursuant to U.S. generally accepted accounting principles (but not reduced by any mortgages or other liabilities) did not exceed $100,000;
  7. no distributions were made by the foreign corporation; and
  8. the foreign corporation either had no current or accumulated earnings and profits or had only de minimis changes in its beginning and ending accumulated earnings and profits balances by reason of income or expenses specified in (4) or (5) above.