Met with potential client today who inherited 99% shares of Canadian corporation in early 2021. His prior accountant created a U.S. corporation with the purpose of saving in exchange rate fees. Most of the Canadian corporation customers are U.S. based but the corporation has not physical presence in the U.S., all work is performed from Canada (Medical research company). The client is a U.S. resident and does not materially participate in the operations of the corporation (has full-time job in the U.S.).
Am I wrong to think this is bonehead idea? There is not need to subject the corporation to the U.S./California tax system and its complex foreign transaction reporting and exposure to potential additional taxes. I am aware that the shareholder will be required to file form 5471 and pay taxes on subchapter f income.