Check-the-Box Elections for Foreign Subsidiaries and Branches: Achieving Optimal Tax Treatment Through Entity Selection

Choosing the form of an entity in a cross-border structure has always been complex. While the Section 7701 check-the-box provisions for entity selection remain one of the most potent tax planning tools available to U.S. taxpayers conducting operations outside the U.S., the treatment of those entities, and their U.S. owners, may be significantly different than in the past.

For taxpayers with foreign activities, the ability to create an entity structure to minimize or defer taxes has been an integral component of cross-border tax strategies. The regulations provide flexibility for U.S. taxpayers engaging in foreign business. Still, tax advisers must know the practical aspects of the rules and the impact of the 2017 tax law changes to maximize the tax benefits.

Section 7701 provides default classification rules for eligible entities but allows them to determine how it is classified for U.S. tax purposes. A foreign entity subject to U.S. tax must make its initial election when it becomes relevant, i.e., when it impacts the U.S. tax liability of any person for either payment or informational return purposes.

Listen as our experienced panel provides a thorough and practical guide to the check-the-box regulations of Section 7701.

1. Overview of the U.S. tax stakes for foreign entity selection
2. Basic entity classification rules of U.S.
   • Identifying when a de facto entity has been formed for U.S. tax purposes (state law not controlling)
   • When entity selection becomes "relevant"
   • Domestic and foreign "default entity classification" rules
   • Expansion of Subpart F's CFC rules; downward attribution rules and recent regulations
3. Section 962 election by an individual
4. GILTI regime and the final GILTI high-tax exclusion regulations
5. Other considerations and tax strategies relevant to foreign entity selection
   • Planning into Subpart F to avoid GILTI
   • Check-and-sell transactions
   • CTB to flow-through to combine QBAI or avoid Code § 59A BEAT
   • Final Foreign Branch Tax Credit Limitation Basket (brief overview)
   • Final Anti-Hybrid Regulations issued under Code § 267A (brief overview)
   • Disposition of partnership interests by foreign partners under Code § 864(c)(8)
6. Preparing IRS Form 8832, and late elections (§ 9100 relief)
7. Key take-aways

The panel will discuss these and other vital issues:

• The implications of using check-the-box elections to pull foreign-source income out of Subpart F treatment
• The effect of the final foreign tax credit regulations on entity selection
• How to determine whether a foreign entity is relevant for U.S. taxation purposes
• The impact of tax law changes on check-the-box elections and tactics to maximize tax savings

Learning Objectives

After completing this course, you will be able to:

• Determine whether a foreign entity is relevant for U.S. tax purposes
• Establish planning techniques for check-the-box elections post-tax reform
• Identify relevant tax issues regarding initial entity selection
• Recognize issues associated with managing the entity status of foreign holdings and potential reclassification

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, supervising other preparers/accountants, preparing complex corporate tax forms and schedules. Specific knowledge of rules governing corporate entity structuring, and federal income tax treatment of business entities. Familiarity with Subpart F rules and concepts of cross-border tax arbitrage and hybrid entities.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).