Check The Box Election Foreign Corporation

A check the box election will avoid the attribution of income under cfc rules or the loss of long term capital gains tax rate discounts when shares are transferred in a passive foreign investment company pfic.

Check the box election foreign corporation. For many foreign limited liability entities choosing to not accept the foreign eligible entity s default classification provides the opportunity to change the u s. A foreign corporation may wish to make a check the box election to ensure that foreign tax paid by it is creditable to the owner of the corporation in the us. However with a check the box election to be treated as a disregarded entity the foreign taxes are treated as having been directly imposed on the us.

This entity classification election referred to as a check the box election is made by filing irs form 8832 entity classification election. The taxpayer must check the appropriate box specify the date the election is to be effective sign and file the form. A foreign entity that is required to file a federal tax or information return for the taxable year for which an election is made e g the company has taxable activities within the u s must attach a copy of the form 8832 to its return.

The irs provides a list of foreign entities which specifies foreign per se corporations for each. Tax treatment of those foreign earnings. Taxpayers should weigh the benefits and detriments of making a check the box election for a foreign eligible entity.

Person should also examine how each option would be treated for u s. Generally speaking a domestic entity that is incorporated or organized as a corporation under a federal or state statute is treated as a per se corporation for us tax purposes and is prohibited from participating in a check the box election. Tax purposes as a corporation partnership or disregarded entity and whether a check the box election would be advisable and how the tax items attributable to the foreign business may impact the u s.

It may also wish to avoid attribution of income under the controlled foreign corporation cfc rules or the loss of the long term capital gains tax rate on the transfer of shares in a passive foreign investment company pfic. If the foreign subsidiary is treated as a corporation the taxes it pays to the foreign government do not create a foreign tax credit for the us owner under section 902. For example a check the box election to treat a subsidiary foreign corporation as a disregarded entity of its parent foreign corporation may cause the transfer of e p and assets from a u s.

For foreign entities the tax implications of making this type of election can be significant so we encourage you to seek proper tax planning advice. Another category of us taxpayers who benefit from check the box regulations consists of us flow through entities s corporations and partnerships with foreign subsidiaries. Person s overall tax liability.