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Tax Law (Questions About Taxes)/Repatriation of corporate income

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Question
If I own an offshore corporation, if my corp. pays my credit card bill, is this considered repatriation of income and thus am I taxed on whatever amount of my bill is paid?

Answer
Hello Frank,

If you own an offshore corporation I assume you are aware of the CFC filing requirements:
http://www.taxesforexpats.com/services/form-5471-preparation.html.

Payment of your personal credit card bills is an equivalent to direct cash disbursement from the corporation to yourself. Payment that corporation makes on your behalf may be treated in three ways.

1)It can be payment in lieu of compensation for personal services - then it should be reported on Sch M of form 5471 and then flow to your personal tax return.

2)Or it may be reimbursement of expenses that you incurred for the corporation (i.e. you had business trip and paid airfare and hotel with your personal credit card). If the latter, then you just need to have report of expenses and don't need to include those payments to your personal income.

3)If neither (1) or (2) applies then reporting becomes more complex and depend on your company financials. It may be treated as ordinary dividend payout or distribution of previously untaxed income or return of capital. Only the latest (return of capital) is an equivalent to the income repatriation.

Hope this helps,
I.J.Zemelman, EA

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IJ Zemelman, EA MBA

Expertise

I am an IRS-authorized EA and principal of a Tax Preparation firm focusing on U.S. Expatriates. We specialize in all tax issues faced by American citizens living abroad - such as foreign earned income, tax treaties, foreign spouse, etc. Visit our website - www.TaxesForExpats.com - for more information.

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18 years professional tax experience, 12 with expatriate taxes.

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Expatriate tax information on www.TaxesForExpats.com

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MBA from Zicklin School Of Business, IRS Enrolled Agent

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