IRC 7701 Check-the-Box Elections for Foreign Pass-Through Entities: Structuring Hybrid Entities for Tax Arbitrage

Lowering U.S. Income Tax on Income From Eligible Foreign Entities by Electing Tax-Advantaged Treatment

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

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Conducted on Tuesday, December 5, 2017

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Course Materials

This course will provide tax advisers with guidance on the advantages and pitfalls of using the “check the box” election for foreign LLCs and disregarded entities. The panel will discuss the tax impact of specific elections of income from foreign disregarded entities, outlining tax timing and treatment, both deferred and on repatriation.

Description

The Section 7701 “check-the-box” provisions for entity selection are a powerful tax planning tool available to U.S. taxpayers conducting operations through subsidiaries outside the U.S. For taxpayers with foreign activities, the ability to create an entity structure to minimize or defer taxes is an integral component of cross-border tax tactics.

While the regulations provide great flexibility for U.S. taxpayers engaging in foreign business, tax counsel must grasp the practical aspects of the rules to maximize tax benefits.

Section 7701 provides default classification rules for eligible entities, but allows certain entities to elect how they will be classified for U.S. tax purposes. Most single-member disregarded entities, entities operating as trusts, and foreign entities organized as a corporation and offering unlimited liability to all its shareholders are not eligible for check-the-box entity selection. However, most eligible pass-through entities may use a check-the-box election.

A foreign entity subject to U.S. tax must make its initial election when it becomes “relevant.” A foreign entity becomes relevant when the entity impacts the U.S. tax liability of any person for either payment or informational return purposes.

A significant benefit of check-the-box rules is the ability of U.S. multinationals to engage in cross-border tax arbitrage through the creation of “hybrid entities.” These entities are treated one way in a foreign jurisdiction and another by the U.S. By managing the entity status of various foreign holdings, U.S. multinationals can achieve U.S. tax savings.

Listen as our experienced panel provides thorough and practical guidance on the check-the-box regulations of Section 7701.

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Outline

  1. Purpose of “check-the-box” entity election
  2. Eligible entities
  3. Relevance determination for foreign entities
  4. Hybrid entities and tax planning opportunities
  5. Income transfer opportunities out of Subpart F
  6. Making retroactive entity selection or reevaluation

Benefits

The panel will discuss these and other important issues:

  • How check-the-box elections facilitate the creation of “hybrid” entities
  • Utilizing check-the-box elections to structure transactions to pull foreign-source income out of Subpart F treatment
  • Retroactive entity selection and completing Form 8832
  • How to determine whether a foreign entity is “relevant” for U.S. taxation purposes

Faculty

Grossman, Cindy
Cindy L Grossman
Partner
Giordani Baker Grossman & Ripp

Ms. Grossman’s practice encompasses a wide variety of corporate and partnership transactions with international,...  |  Read More

Patrick J. McCormick, J.D., LL.M.
Patrick J. McCormick, J.D., LL.M.
Kulzer & DiPadova

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

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