Taxation

Ca. Tax Lawyer August 2018, Volume 27, Number 2

Request for Guidance Regarding the Relevancy Requirement of the Check-the-Box Regulations1

By John Miles2 & Liliana Menzie3

I. EXECUTIVE SUMMARY

Selecting the appropriate business entity for a new venture or investment requires thoughtful consideration of legal and tax issues, which often drive the decision-making process. Regulations issued by the United States ("U.S.") Treasury define and classify business entities for Federal tax purposes as corporations, partnerships or disregarded entities, based on several factors4 (the "CTB Regulations"). The CTB Regulations offer unique planning opportunities, since under certain circumstances a business entity can elect its classification for Federal tax purposes.

In the international context, a foreign business entity that is not classified as a "per se" corporation is a "foreign eligible entity" which can elect its classification for Federal tax purposes as set forth by the CTB Regulations.5 The Regulations require that the classification of a foreign eligible entity be "relevant" in order for such an election to be effective. If a foreign eligible entity is not "relevant," such entity must use the default rules to determine its classification once it first becomes relevant.6 Under the CTB Regulations, a foreign entity’s classification is relevant:

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