Conducting Business Abroad? The Check-the-Box Regulations and Cross Border Tax Arbitrage May Offer Significant Tax Savings Opportunities
By Anthony Diosdi It has always been important, but often difficult to determine the proper characterization of entities, foreign or domestic, for U.S. income, estate, and gift tax purposes. Under older law, the U.S. federal tax classification of an entity depended on the number of corporate characteristics (limited liability, continuity of life, centralized management) it possessed. The 1997 check-the-box regulations (Regs. Sections 301.7701-1, 2, and 3) have brought substantial certainty and flexibility to this endeavor. A relatively comprehensive list of foreign entities will be treated as per se corporations, and, unless an election to the contrary is timely filed, any other foreign organization is to be treated as a partnership if it has two members (at least one of whom has limited liability) or disregarded as an entity separate from…