# 5471 - Significant Discovery - What defines a corporation?



## annethomas (Oct 25, 2021)

Hi there,
I'm living in Denmark and own a small company - an ApS. It's a limited liability company. I've been advised that this would be considered a corporation, which means I now have to file a form 5471, which is 20 pages long and would cost me anywhere between 5-10k in legal fees.

But as I researched this forum, I found something that could potentially change everything - for a lot of us I think - if it's actually true. And I'm looking for more opinions if anyone would care to chime in. It's a statement made by the user Bevdeforges in another thread:

_"Before you get too worried about filing form 5471, be sure to take a look at the instructions for form 8832. (Yeah, weird IRS logic, I know.) Page 7 of the instructions provides a list of the types of business entities in various countries that are considered corporations for Federal tax purposes."_

I checked out the underlying law text and it provides the same list of foreign entities: 26 CFR § 301.7701-2 - Business entities; definitions.

A lot of entities are mentioned here, but a lot aren't. (No mentions of UK Ltd companies (only Public Ltd Companies) or German GmbH (only Aktiengesellschaft) for instance).

Specific to my case, this list of foreign entities that are considered corporations by the IRS only includes a Danish "Aktieselskab", but not a Danish ApS, which is similar to an "Aktieselskab" but has lower capital requirements.

Here's my question:
* Do you interpret the law / 8832 instructions in the same way as Bev – i.e. that if your entity name is not on the list of what foreign entities the IRS defines as a corporation, then it IS NOT considered a corporation and won't have to file a 5471?

* Or is ANY foreign limited liability company still defined as a corporation as 301.7701-2(b)(8)(4) would perhaps suggest? (Or would it?)

I have a hard time reading 301.7701-2(b)(8) as it gets a little confusing. But I actually think Bev is right.

Form 8832 might be a better place to read up on this. If you go to the "Definitions" section and then look under "Corporation", it seems like only the foreign entities listed on page 7 in the form are _actually_ defined by the IRS as corporations (i.e. no "ApS", no "Ltd", no "GmbH").

But where it then gets confusing is that the "Definitions" section continues to define a "Limited Liability Company" after having defined a "Corporation". Some might interpret this as meaning that any Limited Liability Company is also considered a Corporation. But that's not right, I think? "Corporations" was already defined and my entity type was not a part of that definition. So however they later define a "Limited Liability Company" does still not make it a "Corporation", does it?

This is confusing because my company IS a "Limited Liability Company" but NOT on the list of entities defined as a foreign "Corporation". And since form 5471 is meant for "certain corporations" - or just corporations - I can only interpret it as being something I don't have to file?

Since this is a question of up to 10k dollars in legal fees and weeks of stress in getting everything into compliance, I'd love some more opinions.


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## 255 (Sep 8, 2018)

@annethomas -- No one has answered your post, so I'll throw in my two cents. Please do not confuse the U.S.'s failure to delineate your particular entity formation as a reason to escape taxes. Many people tried to do this, years ago, with "foundations," which were then not found at all, in the U.S. tax code, and were surprised when they were retroactively determine to be "trusts," which have an onerous tax treatment.

Fortunately for you, the U.S. has a "check the box" classification system, where you can be taxed as whatever entity you choose. Many people also choose to treat their foreign entities as "disregarded," where all proceeds would revert to the owners tax returns.

An LLC is not a "tax status" in the U.S. In the U.S., LLCs are state creations and the two most common reporting standards are utilizing IRS form 1065 to treat the LLC as a partnership (multi-member LLC) or as a disregarded entity, utilizing Schedule C to IRS form 1040 (standard for single-member LLCs.)

The current standard for real estate investors, in the U.S., is to establish an LLC, as a holding company in NV or WY, taxed as an S Corp. and the individual properties placed in jurisdictional LLCs (domestic or foreign) being 100% owned by the S Corp. (holding LLC) and classified as disregarded entities (therefore no tax returns.) Often a NV, WY, DE or FL C Corp. is thrown into the mix, for management purposes.

Your post doesn't give enough information, as to what is best for your situation. I certainly would "run away," from any advisor wanting to charge $10K to complete a form for a small family business. There are advantages to filing as a foreign corporation, (though you'd still need to file GILTI taxes) but there are also advantages to filing as a disregarded entity. You'll have to examine your own business to determine what is best.

Of course depending on your profits, you can shelter your foreign earnings from the IRS with the FEIE or FTC. 

Bottom line, the U.S. has been diligent, with legislation, the last few years to make "attributable" ownership, a real thing. I think it would be folly to ignore the rules completely (even if you "think" you've found a loophole.) Failure to abide by CFC & PFIC rules can have very detrimental consequences!

In you situation, I personally would file IRS form 8832 https://www.irs.gov/pub/irs-pdf/f8832.pdf and check 6e or 6f, depending on your situation. If your company is generating lots of money (or it does so in the future,) I'd chose to have it taxed as a corporation (filing 5471) and dealing with GILTI, while maintaining the bulk of profits overseas.

You seem sophisticated enough to file your own taxes or at least realize when you're being taken advantage of. Cheers, 255


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