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

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.

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

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

Learning Objectives

After completing this course, you will be able to:

• Discern the rules for determining whether a foreign business association qualifies as a separate taxable entity under U.S. tax law
• Identify elements of a foreign trust that would make it ineligible for trust treatment under U.S. tax law
• Recognize the available elections for U.S. owners of foreign business entities to select how those interests will be taxed by the United States

• 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).