Washington (Aug. 16, 2004) -- The Treasury Department has issued temporary and proposed regulations regarding the proper classification for federal tax purposes of business entities organized in multiple jurisdictions.


“For international tax purposes, an entity might have different tax classifications under different tax jurisdictions,” said Selva Ozelli, CPA, an international tax attorney with RIA, a Thomson business.


Ozelli said that the regulations will clarify the entity’s classification both as to whether it is a corporation or a partnership, and also whether it is foreign or domestic for U.S. tax purposes.


In general, the status of a business entity for tax purposes -- for example, as a corporation or as some other type of entity such as a partnership -- depends on its form of organization. Under existing final regulations, entities that take certain forms in their country of organization generally are treated as corporations.


Although some taxpayers have taken the position that the fact that an entity takes one of these corporate forms of organization may be disregarded if the entity takes a different form in another jurisdiction, the new rules make clear that an entity organized in more than one jurisdiction is treated as a corporation for tax purposes if it takes a corporate form in any jurisdiction.


Generally, for tax purposes, a business entity is considered to be a domestic entity if it is organized in the United States, and is considered to be a foreign entity only if it is not organized in the U.S. Accordingly, the temporary and proposed regulations make clear that, when a business entity is organized both in the U.S. and in a foreign jurisdiction, it is treated as a domestic entity for federal tax purposes.


-- Roger Russell

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