Page 17 - Newcom

need to submit balance sheets and other informa- tion from her corporation’s financial statements with Form 5471.
Svetlana’s accountant will also need to convert Canadian dollar figures to U.S., using the rate
as of December 31 given by the U.S. Treasury Department’s Bureau of the Fiscal Service. Com- pleting the form is a job for a pro, says Banach. “For a U.S. accountant who’s familiar with it
and has the background knowledge, it’s not the biggest deal and it’s not going to cost a lot. But if you’ve never filled it out before, it’s going to take a very long time.”
How long? The IRS estimates some filers will need 16 hours and 14 minutes to learn about the law or the form and another 24 hours and 17 min- utes to prepare and send the form to the IRS.
Issue #2:
Investment income within corporation Svetlana’s made another mistake: she has invest-
ment income within the corporation. Tax experts refer to this as Subpart F income. “It’s essentially pas- sive income,” notes Chang.
WHEN THE IRS DISCOVERS SOMEONE’S NON-COMPLIANT,
IT SENDS A NOTICE.
Here’s Svetlana’s prob-
lem: she hasn’t distributed the income, and CRA won’t tax it until she does; but the IRS taxes it the year it’s earned—distributed or not. So she has to pay the IRS without getting any foreign tax cred- its, since she’s paid no Canadian tax. But when she later distributes the income, CRA gets its cut. “So essentially there’s double tax,” says Chang.
Issue #3:
Income splitting
Svetlana hasn’t been income splitting with Matvei, and it’s not completely clear she should be, notes Banach. “There are conflicting opinions on whether someone in Svetlana’s circumstances can income split.” 18
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