FROM THE OFFICE OF PUBLIC AFFAIRS

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Today, the Treasury Department and the IRS withdrew the so-called “extraordinary transaction” rule that was included in proposed regulations issued on November 29, 1999. At the same time, Treasury and the IRS finalized the portions of the 1999 proposed regulations other than the extraordinary transaction rule.

The “extraordinary transaction” rule would have operated to change the classification of a foreign entity for tax purposes if certain transactions occurred within a year of the date the entity elected disregarded-entity status. Most commentators on the proposed regulations criticized this approach as overly broad and expressed concern that it would undermine the increased certainty and simplification promoted by the entity classification regulations issued in 1996.  Treasury and the IRS announced the intention to withdraw the extraordinary transaction rule in Notice 2003-46, issued June 26, 2003

The final regulations provide guidance on the application of the general entity classification rules to certain foreign business entities.  The intention to finalize these portions of the proposed regulations also was noted in Notice 2003-46.

Related Documents:

• TD 9093 Final Regulations: Special Rules for certain Foreign Business Entities
• REG-110385-99 Partial Withdrawal of Proposed Regulations Relating to Changes in Entity Classification