That's an interesting point! I've owned exactly 50% since the beginning with no changes to the ownership structure. The only change in my situation was becoming a US tax resident 4 years ago (I filed the 5471 that first year as required when acquiring stock as a US person). After that, there have been zero changes to ownership percentages or corporate structure.

Given there haven't been any ownership changes since your initial filing, your analysis looks even more solid. That initial filing when you became a US resident was correct (Category 3 for acquisition), but the ongoing yearly filings wouldn't be required if you don't meet any of the other categories. One more thing to consider - has the foreign corporation ever made any distributions or dividends to you during these years? Sometimes CPAs file Form 5471 if there are distributions because it provides a cleaner way to report them, even if technically not required. Might explain why they've been insistent on filing it.

I work with international business structures and this is 100% correct. The control test for Category 4 requires MORE than 50% ownership, not exactly 50%. This is a common misconception among accountants who don't specialize in international taxation. That said, there's a specific rule for closely held companies where two 50% owners might both be considered to have "control" in certain circumstances. This usually applies when both owners are actively involved in management decisions. Is that the case with your foreign corporation? Do you and the other owner make joint decisions, or does one of you have more operational control?

Does filing an extension because of a late K-1 increase your chances of being audited? I've always heard you should avoid extensions if possible.

Filing an extension does not increase your audit risk at all. That's a common myth. In fact, tax professionals file extensions for many of their clients as standard practice. The key is making sure you pay any estimated tax due when you file the extension. Penalties are for not paying on time, not for filing the actual return later. As long as you make a good faith estimate of what you owe and pay that amount with your extension request, you're completely fine.

This is great advice! I had the same issue with a wrong EIN and it was a nightmare to fix. I'd also recommend comparing the K-1 you receive with any estimated K-1 info your brother might have given you during the year. If there are big differences, ask why before filing.

Do these mail forwarding services actually hold up if you get audited? I'm worried about setting something up that looks fishy to tax authorities.

Mail forwarding services are completely legal and legitimate for business addresses when properly used. The key is transparency and accuracy in your tax filings. You need to be truthful about where business activities actually occur, regardless of your official address. If you're audited, what matters is where you're conducting business operations, not just where your mail goes. If you claim Wyoming for tax purposes but are clearly operating from Connecticut, that would be problematic. However, many digital businesses can legitimately operate from anywhere. Document your work locations, keep records of travel, and consult with a tax professional to ensure you're handling multi-state issues correctly.

Thank you for sharing your experience! Great point about investors potentially seeing through tax avoidance strategies. Did you end up having to register as a foreign entity in multiple states despite having your Wyoming address? Were there any complications with banking or receiving payments with this setup?

Yes, I did end up registering as a foreign entity in California because I spent significant time working there (over 183 days). The Wyoming address wasn't an issue for banking - I used Mercury for business banking and everything was set up online. They just required my EIN, formation documents, and operating agreement. For payments, no complications at all. Most payment processors and platforms don't care about your physical address as long as you have proper business documentation. The biggest challenge was actually keeping track of where I was working throughout the year for tax purposes. I created a simple spreadsheet to log my location each week, which helped tremendously when tax season came around.

Does this change if it's a sole proprietorship though? Since the business income passes through to the business owner's personal return anyway? I'm confused about how this works since technically the money would be taxed on someone's personal return either way.

Great question about sole proprietorships. You're right that the income ultimately flows to someone's personal return, but it matters WHO reports it. The income should flow through the Schedule C of the actual business owner (father-in-law), not OP. Even though it's all "personal income" eventually, the proper reporting chain matters. If reported incorrectly as OP's income, they're being taxed on money they never received or controlled. Plus, the father-in-law's business isn't showing its true income, which creates problems for both parties. The key is getting the income attributed to the correct taxpayer, even if both are individuals in the eyes of the IRS.

The Taxpayer Advocate Service can be amazing but they're extremely backlogged right now. I applied for help in January and didn't hear back until April. They're prioritizing cases with immediate hardship (like impending house foreclosure or can't afford medications). Based on what OP described, they might qualify if the tax bill is causing severe financial hardship, but I'd pursue multiple paths simultaneously rather than waiting on TAS.

3 Can you explain the pro-rata rule a bit more? I have some old 401k money that I rolled into a Traditional IRA years ago, plus some non-deductible contributions like OP. Will that mess up the backdoor Roth strategy?

22 The pro-rata rule means the IRS looks at all your Traditional IRA accounts combined when you do a conversion. If you have a mix of pre-tax and after-tax money, you can't just convert the after-tax portion. For example, if you have $50,000 in pre-tax Traditional IRA money from an old 401k rollover, and you add $6,000 in non-deductible contributions (after-tax), your IRAs are now about 89% pre-tax and 11% after-tax. If you try to convert $6,000 to Roth, about 89% of that conversion ($5,340) would be taxable. One workaround some people use is to roll pre-tax IRA funds into a current employer's 401k if possible, which removes them from the pro-rata calculation. Then they can do clean backdoor Roth conversions with just the non-deductible contributions.

18 The main downside is that any earnings on that money will be taxed as ordinary income when you withdraw in retirement, rather than being tax-free like they would in a Roth. If you're young and this money will be invested for decades, that's potentially giving up a lot of tax-free growth. Also, tracking basis gets more complex over time if you have a mix of deductible and non-deductible contributions. You'll need to file Form 8606 every year you make non-deductible contributions and keep records potentially for decades.