[throwawayqq]

If someone followed this strategy, is there any risk of the employee being reclassified as an employee of the original Canadian corp by the US, since it could be considered a loop hole or getting around the spirit of the law?

[philiphodgen]

In theory this risk exists. If you (the owner of the corporation) behave as if it does not exist, then the tax authorities will likely see it that way, too. If this happens (the U.S. corporation is disregarded) then the Canadian corporation will be treated as doing business in the USA via its agent (the employee of the U.S. corporation).

This is why corporations are expensive. "Meh paperwork". But the first thing the IRS asks for when they start an audit is the minute book to show the meetings of the Board of Directors and the meetings of the shareholders.

Moral of the story: if you're not willing to pay for maintenance, don't buy a Ferrari.

Moral of the story: OCD and anal-retentive behavior are rewarded in TaxWorld. Pragmatism and "good enough" are punished. :-)