# Foreign Disregarded Entity (check-the-box election) and the issue of double taxation



## tomspc (4 mo ago)

Hi,
I will try to keep it simple but happy to add details as needed. I realize that this is an advanced topic but hoping there are some business owners or advisors that can help to see if missing something obvious.

US citizen, foreign corporation CFC (single owner), elected to check-the-box => DRE

As this is the first year of operations, dividend cannot be paid until the year is closed and an annual report is filled. As a result, the earliest the dividend can be paid out is 2023.

In 2022 then, CFC pays 9% corporate tax.

So now when it comes to US tax return, since all income from CFC flows-through to an owner, is it that the US will impose tax at the ordinary rates without any foreign tax credit to apply?
And if so, what happens when the dividend is paid out in 2023 on the income that was already taxed by the US? Dividends are taxed at 19%. So if that tax is paid in 2023, that income will have been tipple taxed, no?

2022 at corporate level in 2022 (9%)
2023 on 2022 US tax return (ordinary rates, potentially high as no FTC claimed since the dividend was paid out in 2023?)
2023 dividend paid (19%)

Surely must be missing something, right?


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