# Special Purpose Entity



## Alltimegreat1 (Feb 25, 2015)

I am a US citizen. I recently found a good deal on some real estate in Latin America. The country that I plan to buy in will offer me a residency permit if I become a small shareholder of a special purpose entity, which would solely be for the purpose of demonstrating an economic tie to the country in addition to the real estate purchase.

The total value of my combined shares in this SPE would be only $20 (yes, twenty dollars). I would not be receiving any dividends.

Would this shareholding give rise to PFIC, CFC, FATCA, or any other (onerous) US tax reporting requirements?

Thanks in advance for the help!


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## Moulard (Feb 3, 2017)

It is difficult to tell based on the limited info... but some food for thought below...

On the SPE...

CFC - maybe, the value of your holding in the SPE is inconsequential, the percentage of your shareholding is more important. If the company only has issued the $20 in shares then you are the constructive owner of the company....

Property Related

The actual reporting related to the property would be no different than an investment property in the US.

FATCA - maybe, assuming you are renting out the real estate, you will need foreign financial accounts in which to receive the rent. This may result in Fincen and FATCA related reporting if balances in your accounts cross reporting thresholds.

Apart from that, the biggest factor that will determine complexity of US reporting on a foreign property is how the properAty is held... 

If you hold the property in your own name, then there should not be significant extra tax reporting requirements (except perhaps working through exchange gains caused by currency fluctuations)

But...

Its not uncommon to hold investment properties using holding companies (which may add PFIC and CFC reporting requirements), or a trust (foreign trust reporting)

Its not clear from what you write whether or not is a vehicle for residency alone, or if it will also hold the title.


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## Alltimegreat1 (Feb 25, 2015)

Thanks for that assessment!

I'm really only concerned about the SPE shareholding, which is something totally unrelated to the real estate investment. I should have stated that more clearly.

What is the percentage of ownership threshold at which CFC reporting is required?


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## Moulard (Feb 3, 2017)

We are conflating a couple of concepts here... both of which may be relevant..

The IRS defines a foreign corporation as being controlled if:


> more than 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, or more than 50 percent of the value of all its outstanding stock, is owned (directly, indirectly, or constructively) by U.S. shareholders on any day during the foreign corporation’s tax year.


So if more than 50% of the shareholders of the SPE are US persons then it is a CFC.

In addition, however the IRS looks at individual shareholders, defining a U.S. Shareholder of a foreign corporation as



> "...a U.S. person who owns 10 percent or more of the total voting power of that foreign corporation"


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## Alltimegreat1 (Feb 25, 2015)

Thanks. Please let me know if this is correct...

In order for a US person individual to trigger any CFC reporting requirement, BOTH conditions would need to be met...

1.) The foreign corporation would need to be more than 50% owned/controlled by US persons

AND

2.) The individual US person shareholder would need to own/control 10% or more of the shares/voting rights


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## 255 (Sep 8, 2018)

Alltimegreat1 -- In response to your last question, I think you have misread Moulard's accurate post. The 50% is a defining threshold to determine if a foreign corporation is a CFC for U.S. tax purposes. The 10% threshold determines if an individual is a U.S. shareholder of a CFC. In other words, if your investment is a CFC (50% or more owned by U.S. persons,) and you owned 9.9% of the stock, you would not be considered a U.S. person for CFC reporting requirements. An even more extreme example, to help in your understanding -- if, lets say, you and 10 of your closest friends (all U.S. persons) decided to invest in a timber farm in South America, to gain residency in the country involved. You formed a foreign corporation to hold title to the land and each of you had an equal share (about 9.09%,) you would still not trigger any CFC reporting requirements, because since you all individually own less than 10% of the companies stock -- you are not considered U.S. persons for determining the 50% ownership rule.

I can't imagine how an investment of $20.00, would be a reportable event under CFC purposes. For your review: Instructions for Form 5471 (02/2020) | Internal Revenue Service

Reference PFIC determination -- As long as you are not receiving distributions from this foreign company (that earned it's money from passive investments,) you don't have a current reporting requirement. For your review: Instructions for Form 8621 (12/2019) | Internal Revenue Service

There is certainly no FATCA requirements -- $20.00 is under FATCA's reporting requirements under any scenario. Ownership of shares would only need to reported for FATCA purposes if they were held in a brokerage account (i.e. financial account.) The IRS summary : Summary of FATCA Reporting for U.S. Taxpayers | Internal Revenue Service

Cheers, 255


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## Alltimegreat1 (Feb 25, 2015)

Thanks a lot for clarifying!


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