QUESTION: As far as I understand, a Panama S.A. corporation can not
file 8832 to be a disregarded entity and is hence subject to ordinary
income taxes on generated income. However, I can't seem to find tax
information regarding passive real estate holdings in an S.A. If an
S.A. only owns one property and that particular property is sold by
means of selling all shares of the S.A. to a third party, what are the
tax consequences?

REPLY: The short-short answer is that gain on the sale of stock of a
controlled foreign corporation is generally treated as ordinary income
to the extent of any acccumulated and tax deferred earnings and
profits of the corporation.

But, rental income from passive real estate is subject to current
taxation by certain U.S. shareholders of the S.A. corporation and the
income on which taxes are paid is added to the cost (basis) to compute
the gain or loss on the sale of the stock of the corporation. If the
gain exceeds the adjusted tax cost (basis), and meets the holding
period requirements for long capital gains, the gain should be
eligible for the reduced tax rate on long term gains.

This assumes that the S.A. corporation is a controlled foreign
corporation and that all of the income of the S.A. corporation is
subject to tax by the shareholders under the rules for subpart F
income in tax code sections 951 through 965.

Vern Jacobs
www.offshorepress.com/offshoretax/

The comments in this email are not intended to constitute an opinion
regarding any specific tax issues because additional tax issues may
exist that could affect the tax treatment of the tax issues addressed
in this memo. This memo does not consider or reach a conclusion with
respect to those additional issues and was not written and cannot be
used for the purpose of avoiding penalties under code section 6662(d).
For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm