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Foreign Entity Selection for U.S. Owners of Offshore Businesses: Avoiding Tax and Reporting Traps

Applying U.S. Law to Foreign Structures, Determining Whether Foreign Trust Qualifies for U.S. Treatment

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, January 17, 2019

Recorded event now available

This course will provide tax advisers to individuals owning controlling shares in foreign businesses with a practical guide to the tax and operational impacts of selecting the entity form for those foreign entities. The panelist will discuss the full range of short-term and long-term tax issues that arise in foreign entity selection, with a specific focus on the changes the 2017 tax reform law made on U.S. tax consequences in selecting the appropriate entity form for purposes of U.S. tax treatment of offshore holdings.

Description

A frequently overlooked but potentially costly task for tax advisers to U.S. individuals holding foreign business interests is determining how those foreign organizations are classified for U.S. tax purposes. U.S. tax advisers 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 Service 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 advisers must know the 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 detailing jurisdiction over classification of foreign business organizations owned by a U.S. taxpayer
  2. Determining if a foreign business organization or activity qualifies as a taxable entity separate from its U.S. owner
  3. Treas. Reg. 301.7701-4(a)-(c) trust definitions and rules
  4. Tax treatment of foreign business entities
  5. Available elections

Benefits

The panelist will discuss these and other relevant topics:

  • Applying fact analysis to determine 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 "relevant" and thus subject to U.S. tax or informational reporting requirements
  • How treatment of the foreign entity in its home country can complicate the decision on entity selection/classification
  • Available elections to determine favorable U.S. tax classification of foreign business entities

Faculty

McCormick, Patrick
Patrick J. McCormick, J.D., LL.M.
Principal
Drucker & Scaccetti

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