Do we need to file a Form 1120F for a foreign corporation receiving a nontaxable return of capital distribution from a USRPHC? Withholding certificate to show ROC distribution. IRS agent is saying they need to file and I disagree as only gain should be ECI.

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Actually the agent has a point. Generally you need to file a Form 5452 to report an ROC distribution. That has to be attached to a US tax return. As a Foreign Corp, that would be a Form 1120-F.

The good news is that the 1120-F will be very limited since it’s only FDAP.

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The foreign Corp is receiving. Not making. Still need a 5452?

If gain is ECI you would need to file, correct? How do you have ECI if all is ROC?

Agreed with TS1, how do you have ECI if it’s 100% ROC?

I agree with TS1 and PWC. No FDAP as there’s no E&P and No ECI as there’s no gain. No 1120F requirement I presume until the ECI is triggered from excess distribution unless of course they are saying it maybe a capital loss of some sort.

I’m not in international, but I would agree with that, OP. I think the USRPHC would still have a 5472 requirement as well.

A Form 5472 is not a tax return, it’s an Information Return.

Second, the 1120-F is used to report ECI, but you also use for other things like making 338 elections, taking a treaty return position and filing 5452’s.

Just because a taxpayer is claiming something is an ROC doesn’t mean it is. The IRS usually requires a taxpayer to confirm that is the case. Also I would make sure you don’t have any issues with FIRPTA which would require could also a Form 1120-F filing. I don’t what the transaction is that caused this distribution, but in my 14 years of experience in ITS and M&A, these are the sorts of things that bite people in the rear.

To put it into perspective it is a FIRPTA issue because the DC is a USRPHC. They report Form 5472. I am just questioning the FC’s filing requirement. We have a withholding certificate from the IRS confirming that it is a return of basis on the 8288-B but when we applied for an EIN for the certificate they said we had to file a Form 1120F which I don’t agree with until the distribution exceeds E&P and basis.

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