Foreign Entity Selection and Taxation: Avoiding Tax and Reporting Pitfalls of Foreign Structures Under U.S. Law

Planning for U.S. Owners of Offshore Businesses, Treatment of Foreign Trusts and Other Entities

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Thursday, September 28, 2023

Recorded event now available

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Course Materials

This CLE/CPE course will provide tax counsel and advisers an in-depth analysis of the tax and operational impacts of foreign entity selection for individuals owning controlling interests in international businesses. The panelist will discuss the tax issues that arise in foreign entity selection, with a specific focus on the U.S. tax consequences in selecting the appropriate entity form for purposes of U.S. tax treatment of offshore holdings under current U.S. tax law.

Description

Tax advisers often overlook the classification of foreign business interests owned by U.S. individuals for U.S. tax purposes. U.S. tax counsel must recognize that the IRC, not the situs country's laws, determines how to classify a U.S. taxpayer's foreign business holding.

In identifying the proper tax classification of a foreign business holding, advisers first must determine whether the business organization qualifies as a taxable entity separate from its owner(s), and if so, whether the entity is appropriately considered a trust or a business organization under U.S. tax law. Treasury regulations define trusts as an arrangement requiring trustees to take title to a property to preserve property for beneficiaries, rather than as a joint business enterprise for profit. The IRS may recast a trust if the entity's purpose does not exist to protect property for beneficiaries.

Once the analysis determines that a foreign structure qualifies as a business entity rather than a trust, the U.S. owner must identify the tax classification of the entity. In certain circumstances, U.S. owners may elect default classifications to choose how to classify the entity for U.S. tax purposes. Tax counsel and advisers must know essential tax rules and mechanics, as well as the ramifications, of entity elections on the tax and reporting duties of U.S. owners.

Listen as our expert panelist provides a thorough and practical guide to the tax and operational impacts of entity classification of foreign interests owned by U.S. taxpayers.

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Outline

  1. IRS rules for foreign entity classification for U.S. taxpayers
  2. Determining if a foreign business organization or activity qualifies as a taxable entity separate from its U.S. owner
  3. Trust definitions and rules under Treas. Reg. 301.7701-4(a)-(c)
  4. Tax treatment of foreign business entities and available elections

Benefits

The panelist will review these and other relevant topics:

  • Key considerations in determining whether to classify a foreign situs trust as a trust for U.S. tax purposes or risk recharacterization as a taxable business entity
  • Identify when a foreign entity becomes subject to U.S. tax or informational reporting requirements
  • How can the treatment of the foreign entity in its home country complicate the decision on entity selection/classification?
  • Available elections and planning to ensure favorable U.S. tax classification of foreign business entities

Faculty

McCormick, Patrick
Patrick J. McCormick, J.D., LL.M.
Founder/Managing Partner
McCormick Tax

Mr. McCormick specializes in the areas of international taxation, tax compliance, and offshore reporting...  |  Read More

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Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

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