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Tag Archive for Foreign Entity For Tax Purposes

What Is The Proper Characterization Of A Foreign Entity For Federal Tax Purposes: Chief Counsel Memo. 2021-002 Offers Some Clues

What Is The Proper Characterization Of A Foreign Entity For Federal Tax Purposes: Chief Counsel Memo. 2021-002 Offers

To Elect or Not to Elect?

Treasury Regulations provide default rules for the proper tax characterization of both domestic and foreign entities.[i] Generally, a business entity that is not classified as a corporation under certain prescribed rules (referred to as “eligible entities”) can elect their tax characterization for federal tax purposes.[ii]

For example, an eligible entity (domestic or foreign) with two members can generally elect to be characterized as either a corporation or a partnership for federal tax purposes.  Conversely, an eligible entity with only one owner can elect to be characterized as either a corporation or a disregarded entity.

Tax Consequences of not Making an Election

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