FROM THE OFFICE OF PUBLIC AFFAIRS

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August 11, 2004
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Treasury Provides Guidance on Classification of Business Entities Organized In Multiple Jurisdictions

Today the Treasury Department issued temporary and proposed regulations regarding the proper classification for federal tax purposes of business entities organized in multiple jurisdictions.

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. Treasury and the IRS are aware, however, that 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. This position is erroneous because all aspects of an entity's organization must be taken into account when determining its status. Accordingly, the temporary and proposed regulations make clear that, when an entity is organized in more than one jurisdiction, it 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 United States. Accordingly, the temporary and proposed regulations make clear that, when a business entity is organized both in the United States and in a foreign jurisdiction, it is treated as a domestic entity for federal tax purposes.

REPORTS

• Temporary Regulations
• Proposed Regulations