Can a non-resident own shares in an S corporation?
This is the question that decides most cross-border cases, and it is an eligibility question rather than a rate question. The election is available only where every shareholder satisfies the shareholder requirements, so a single holder who does not can put it out of reach, or, if the election has already been made, make it invalid from the start and liable to be unwound years later. The practical consequence is that share transfers need testing before they happen rather than after. Where an owner's status is the obstacle, the fix lies in the structure or the share register, not in the form.
Who has to sign Form 2553?
The corporation makes the election and the shareholders consent to it, so the signature set has to cover everyone holding shares over the period the election is to reach. That is straightforward on the first day and awkward afterwards, because it can mean consent from someone who has since sold, moved abroad or died, and whose consent must then come from an estate. Test eligibility while you are gathering the signatures: a complete set of consents from a shareholder group that was never eligible does not produce a valid election, and nothing about the paperwork will show it.
Does a Canadian shareholder break an S corporation election?
It can, and the test to apply is the shareholder eligibility requirement rather than anything about that shareholder's tax rate. The answer turns on the holder's status under those rules on each day the shares were held, which is why a mid-year transfer is a date to record rather than a detail. If the holding predates the election, the election may never have been valid at all. If it came later, the question becomes when the election ceased to apply, and what the corporation's returns and the shareholders' returns for the years since should have said instead.
Can a holding company be a shareholder in an S corporation?
Entity shareholders are where otherwise sensible structures fail the eligibility test, and a holding company interposed for ordinary commercial reasons is the usual culprit. Some kinds of holder are permitted and many are not, so a holder's own classification has to be established before the election is filed rather than inferred from its name. Where the group genuinely needs the holding company, this election is not the instrument to use and the planning has to go elsewhere. Where it does not, rearrange the ownership first, in that order, because an election filed over an ineligible register achieves nothing.
What happens if a shareholder becomes ineligible after we elect?
The election does not survive on the strength of having once been valid. Eligibility is tested by reference to who holds the shares, so a transfer to a holder who does not qualify is an event with consequences for the corporation's own returns and for every shareholder's. The difficulty is that nothing announces it: the transfer is a corporate action, and the tax consequence appears only when someone sets the register against the eligibility rules. Recording each transfer against those rules as it happens is far cheaper than establishing years afterwards when the position changed.
Is an S corporation election worth it for a Canadian owner?
Answer the eligibility question first, because it can close the discussion before the merits are reached. If the election is available, the thing to examine is where the income lands: the election moves it out of the company and into the shareholders' hands, and a shareholder resident in another country must then account for it under that country's rules, which form their own view of what the company is. That interaction, rather than the effect inside the United States alone, is what decides whether the election helps a cross-border owner or complicates them.
What is a foreign trust for US tax purposes?
A trust that is not a domestic trust — broadly, one that fails the tests looking at whether a US court can exercise primary supervision and whether US persons control the substantial decisions. The classification decides everything downstream: whether the settlor is taxed on the income as owner, how distributions to US beneficiaries are taxed, and which annual information returns are due. Many ordinary foreign arrangements, including some pension and education savings vehicles, land inside the definition. See Form 3520-A.
What is GILTI?
A US rule that taxes shareholders of controlled foreign corporations currently on the corporation's income above a routine return on its tangible assets, rather than waiting for a dividend. The target was profit — especially from intangibles — parked in low-tax jurisdictions. The name, the deduction and the asset-based reduction are the parts Congress has revisited, so we compute it from the rules in force for the filing year instead of a remembered percentage. See the GILTI inclusion and Form 8992.
