Free Response to Motion - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

No. 05-738 T (Judge Wheeler)
BROWNING-FERRS INDUSTRIES, INC. & SUBSIDIARIES,

Plaintiff
v.

THE UNITED STATES,

Defendant

APPENDIX OF STATUTES AND REGULATIONS TO OPPOSITION BY THE UNITED STATES TO PLAINTIFF'S MOTION FOR VOLUNTARY DISMISSAL WITHOUT PREJUDICE PURSUANT TO RCFC 4l(a)(2) AND FOR DISMISSAL OF COUNTERCLAIM PURSUANT TO RCFC 12(b)(1)

EILEEN 1. O'CONNOR Assistant Attorney General

DAVID GUSTAFSON STUART J. BASSIN JENNIFER D. SPRIGGS
JACOB E. CHRISTENSEN

Attorneys U.S. Deparment of Justice Tax Division Cour of Federal Claims Section Post Office Box 26

Ben Franlin Post Offce
Washington. D.C. 20044 (202) 307-6418
(202) 307-2504 (fax)

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APPENDIX OF STATUTES AND REGULATIONS:

Index Page

United States Code:
26 U.S.C. §7422 .............................................................. 1 28 U.S.C. §1503 .............................................................. 3

Treasury Regulations:
Treas. Reg. § 1.6012-2 ......................................................... 4 Treas. Reg. § 301.6402-2 ...................................................... 10 Treas. Reg. § 301.7701-2 ...................................................... 12 Treas. Reg. § 301.7701-3 ...................................................... 20

Miscellaneous:
Delaware Corporate Statutes .................................................... 30

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United States Code:
26 U.S.C.A. § 7422
LR.C. § 7422

§ 7422. Civil actions for refund

(a) No suit prior to fiing claim for refund.--No suit or proceeding shall be maintained

in any court for the recovery of any internal revenue tax alleged to have been erroneously or ilegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refud or credit has been duly fied with the Secretary, according to the provisions oflaw in that regard, and the regulations of the
Secretary established in pursuance thereof.

(b) Protest or duress.--Such suit or proceeding may be maintained whether or not such

tax, penalty, or sum has been paid under protest or duress.
(c) Suits against collection offcer a bar.--A suit against any officer or employee of the United States (or former officer or employee) or his personal representative for the recovery of any internal revenue tax alleged to have been erroneously or ilegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected shall be treated as if the United States had been a part to such suit in applying the doctrine of res judicata in all suits in respect of any internal revenue tax, and in all proceedings in the Tax Court and on review of decisions of

the Tax Court.

(d) Credit treated as payment.-- The credit of an overpayment of any tax in satisfaction

of any tax liability shall, for the purpose of any suit for refund of such tax liability so satisfied, be deemed to be a payment in respect of such tax liability at the time such
credit is allowed.
( e) Stay of proceedings.-- If the Secretary prior to the hearing of a suit brought by a

taxpayer in a district court or the United States Claims Cour for the recovery of any income tax, estate tax, gift tax, or tax imposed by chapter 41,42,43, or 44 (or any penalty relating to such taxes) mails to the taxpayer a notice that a deficiency has been
determined in respect of the tax which is the subject matter of taxpayer's suit, the

proceedings in taxpayer's suit shall be stayed during the period of time in which the taxpayer may fie a petition with the Tax Cour for a redetermination of the asserted deficiency, and for 60 days thereafter. If the taxpayer fies a petition with the Tax Court, the district court or the United States Claims Court, as the case may be, shall lose
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jurisdiction of of

taxpayer's suit to whatever extent

jurisdiction is acquired by the Tax Cour

taxpayer's suit for refud. rfthe taxpayer does not file a petition the asserted deficiency, the United States may counterclaim in the taxpayer's suit, or intervene in the event of a suit as described in subsection (c) (relating to suits against officers or employees of the United States), within the period of the stay of proceedings notwithstanding that the time for such pleading may have otherwise expired. The taxpayer shall have the burden of proof with respect to the issues raised by such counterclaim or intervention of the United States except as to the issue of whether the taxpayer has been guilty of fraud with intent to evade tax. This subsection shall not apply to a suit by a taxpayer which, prior to the date of enactment of this title, is commenced, instituted, or pending in a district court or the United States Claims Court for the recovery of any income tax, estate tax, or gift tax (or any penalty relating to such taxes).
the subject matter of with the Tax Court for a redetermination of

(t) Limitation on right of action for refund.-(1) General rule.--A suit or proceeding referred to in subsection (a) may be maintained the United States (or former offcer or employee) or his personal representative. Such suit or proceeding may be maintained against the United States notwithstanding the provisions of section 2502 oftitle 28 of the United States Code (relating to aliens' privilege to sue)
only against the United States and not against any officer or employee of

and notwithstanding the provisions of section 1502 of such title 28 (relating to certain
treaty cases).

(2) Misjoinder and change of venue.--If a suit or proceeding brought in a United States the United States (or former officer or employee) or his personal representative is improperly brought solely by virtue of paragraph (1), the court shall order, upon such terms as are just, that the pleadings be amended to substitute the United States as a part for such officer or employee as of the time such action commenced, upon proper service of process on the United States. Such suit or proceeding shall upon request by the United States be transferred to the district or division where it should have been brought if such action initially had been brought against the United States.
district court against an offcer or employee of

(k) Cross references.--

(1) For provisions relating generally to claims for refund or credit, see chapter 65 (relating to abatements, credit, and refund) and chapter 66 (relating to limitations).
(2) For duty of United States attorneys to defend suits, see section 507 of Title 28 of the

United States Code.
(3) For jurisdiction of United States district cours, see section 1346 of Title 28 of the

United States Code.
(4) For payment by the Treasury of employees, upon certificate of probable cause, see section 2006 of

judgments against internal revenue officers or Title 28 of the United

States Code.

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28 U.S.C.A. § 1503
§ l503. Set-offs

The United States Cour of Federal Claims shall have jurisdiction to render judgment

upon any set-off or demand by the United States against any plaintiff in such cour.

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Treasury Regulations (26 C.F. R.):
Treas. Reg. § 1.6012-2

CODE OF FEDERAL REGULATIONS TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEP AR TMENT OF THE TREASURY SUBCHAPTER A--INCOME TAX PART l--INCOME TAXES PROCEDURE AND ADMINISTRATION INFORMA TION AND RETURNS RETURNS AND RECORDS TAX RETURNS OR STATEMENTS
1. § 1.6012-2 Corporations required to make returns of income.
(a) In general--(1) Requirement of return. Except as provided in paragraphs (e) and
(g)(l) of

this section with respect to charitable and other organizations having unelated

business income and to certain foreign corporations, respectively, every corporation, as defined in section 7701 the Code shall make (a)(3), subject to taxation under subtitle A of
a retur of income regardless of whether it has taxable income or regardless of the

amount of its gross income.

(2) Existence of corporation. A corporation in existence during any portion of a taxable year is required to make a return. If a corporation was not in existence throughout an annual accounting period (either calendar year or fiscal year), the corporation is required
to make a retur for that fractional part of a year during which it was in existence. A

corporation is not in existence after it ceases business and dissolves, retaining no assets, whether or not under State law it may thereafter be treated as continuing as a corporation
for certain limited puroses connected with winding up its affairs, such as for the purose

of suing and being sued. If the corporation has valuable claims for which it wil bring suit during this period, it has retained assets and therefore continues in existence. A corporation does not go out of existence if it is tured over to receivers or trustees who continue to operate it. If a corporation has received a charter but has never perfected its organization and has transacted no business and has no income from any source, it may upon presentation of the facts to the district director be relieved from the necessity of making a return. In the absence of a proper showing of such facts to the district director, a corporation wil be required to make a return.

(3) Form of return. The return required of a corporation under this section shall be made on Form 1120 unless the corporation is a type for which a special form is prescribed. The special forms of returs and schedules required of particular types of corporations are set
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forth in paragraphs (b) to (g), inclusive, of this section.

(b) Personal holding companies. A personal holding company, as defined in section 542, including a foreign corporation within the definition of such section, shall attach
Schedule PH, Computation of

U.S. Personal Holding Company Tax, to the retur
this section.

required by paragraph (a) or (g), as the case may be, of

(c) (Reserved). For further guidance, see S 1.6012-2T(c).

(d) Affiiated groups. For the forms to be used by affiiated corporations filing a
consolidated return, see S 1. 1 502-75.

(e) Charitable and other organizations with unrelated business income. Every

organization described in section 511 (a)(2) which is subject to the tax imposed by section 51 l( a)( 1) on its unelated business taxable income shall make a return on Form 990- T for each taxable year if it has gross income, included in computing unelated business
taxable income for such taxable year, of$l,OOO or more. The fiing ofa return of

unrelated business income does not relieve the organization of the duty of filing other required returns.
(t) Farmers' cooperatives. Farmers' cooperative organizations described in section 521

are required to make a return of income whether or not such organizations are subject to the taxes imposed by sections 11 and 1201 as prescribed in section 522 or 1381. The
return shall be made on Form 990- C.

(g) Returns by foreign corporations. (1) Requirement of return--(i) In general.
Except as otherwise provided in subparagraph (2) of this paragraph, every foreign corporation which is engaged in trade or business in the United States at any time during the taxable year or which has income which is subject to taxation under subtitle A of the
Code (relating to income taxes) shall make a retur on Form 1 120-F. Thus, for example,

a foreign corporation which is engaged in trade or business in the United States at any time during the taxable year is required to fie a return on Form 1 120-F even though (a) it has no income which is effectively connected with the conduct of a trade or business in the United States, (b) it has no income from sources within the United States, or (c) its income is exempt from income tax by reason of an income tax convention or any section of the Code. However, if the foreign corporation has no gross income for the taxable year, it is not required to complete the retur schedules but must attach a statement to the return indicating the nature of any exclusions claimed and the amount of such exclusions
to the extent such amounts are readily determinable.

(ii) Treaty income. If the gross income of a foreign corporation includes treaty income, as defined in paragraph (b)(1) of S 1.871-12, a statement shall be attached to the return on Form 1120-F showing with respect to that income:

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(a) The amounts of

tax withheld,

(b) The names and post office addresses of withholding agents, and

(c) Such other information as may be required by the retur form or by the instructions issued with respect to the form, to show the taxpayer's entitlement to the reduced rate of
tax under the tax convention.

(ii) Balance sheet and reconcilation of income. At the election of the taxpayer, the
balance sheets and reconciliation of

income, as shown on Form 1 120-F, may be limited to:

the corporation located in the United States and to its other assets used (a) The assets of in the trade or business conducted in the United States, and
(b) Its income effectively connected with the conduct of a trade or business in the United States and its other income from sources within the United States.

(2) Exceptions--(i) Return not required when tax is fully paid at source--(a) In
general. A foreign corporation which at no time during the taxable year is engaged in a trade or business in the United States is not required to make a return for the taxable year if its tax liability for the taxable year is fully satisfied by the withholding of tax at source under chapter 3 of the Code. For purposes of this subdivision, some ofthe items of income from sources within the United States upon which the tax liabilty wil not have been fully satisfied by the withholding of tax at source under chapter 3 of the Code are:

(1) Interest upon so-called tax-free covenant bonds upon which, in accordance with section 1451 and S 1.1451 - 1, a tax of only 2 percent is required to be withheld at source,
(2) In the case of

indebtedness issued after September 25, 1965, amounts described in section 881 (a)(3),
bonds or other evidence of

bonds between interest dates, (3) Accrued interest received in connection with the sale of which, in accordance with paragraph (h) of S 1.1441-4, is not subject to withholding of tax at source.

(b) Corporations not included. This subdivision (i) shall not apply:

(1) To a foreign corporation which has income for the taxable year which is treated under section 882( d) or Wand § 1.882-2 as income which is effectively connected for the taxable year with the conduct of a trade or business in the United States by that corporation,
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this chapter (2) To a foreign corporation making a claim under § 301.6402-3 of (Procedure and Administration Regulations) for the refud of an overpayment of tax for the taxable year, or
(3) To a foreign corporation described in paragraph (c )(2)(i) of S 1.532- 1 whose accumulated taxable income for the taxable year is determined under paragraph (b )(2) of
S 1.535- 1.

(ii) Beneficiaries of estates or trusts. A foreign corporation which is a beneficiary of an

estate or trust which is engaged in trade or business in the United States is not required to make a return for the taxable year merely because it is deemed to be engaged in trade or business within the United States under section 875(2). However, such foreign corporation wil be required to make a retur if it otherwise satisfies the conditions of subparagraph (l)(i) of this paragraph for making a return.
paragraphs (b) through (f) of (ii) Special returns and schedules. The provisions of this section shall apply to a foreign corporation except that a foreign corporation which is an insurance company to which paragraph (c)(3) of this section applies shall make a retur on Form 1 120-F and not on Form 1120. Ifa foreign corporation which is an insurance company to which paragraph (c)(l) or (2) of this section applies has income for the taxable year from sources within the United States which is not effectively connected for that year with the conduct of a trade or business in the United States by that corporation, the corporation shall attach to its retur on Form 1 120L or 1 120M, as the case may be, a separate schedule showing the nature and amount of the items of such income, the rate of tax applicable thereto, and the amount of tax withheld therefrom under chapter 3 of the Code.

(3) Representative or agent for foreign corporation--(i) Cases where power of
attorney is not required. The responsible representative or agent within the United

States of a foreign corporation shall make on behalf of his principal a return of, and shall pay the tax on, all income coming within his control as representative or agent which is subject to the income tax under subtitle A of the Code. The agency appointment wil determine how completely the agent is substituted for the principal for tax purposes. Any person who collects interest or dividends on deposited securities of a foreign corporation, executes ownership certificates in connection therewith, or sells such securities under special instructions shall not be deemed merely by reason of such acts to be the responsible representative or agent of the foreign corporation. If the responsible representative or agent does not have a specific power of attorney from the foreign corporation to fie a return in its behalf, the return shall be accompanied by a statement to the effect that the representative or agent does not possess specific power of attorney to fie a return for such corporation but that the return is being filed in accordance with the provisions of this subdivision.

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(ii) Cases where power of attorney is required. Whenever a return of income of a foreign corporation is made by an agent acting under a duly authorized power of attorney
for that purose, the return shall be accompanied by the power of attorney in proper

form, or a copy thereof specifically authorizing him to represent his principal in making, executing, and filing the income tax retur. Form 2848 may be used for this purpose. The agent, as well as the taxpayer, may incur liability for the penalties provided for
erroneous, false, or fraudulent returs. For the requirements regarding signing of see § 1.6062-1. The rules of paragraph (e) of § 601.504 of

returs,

this chapter (Statement of Procedural Rules) shall apply under this subparagraph in determining whether a copy of a power of attorney must be certified.
(ii) Limitation. A return of income shall be required under this subparagraph only if the

foreign corporation is otherwise required to make a return in accordance with this paragraph.
(4) Disallowance of deductions and credits. For provisions disallowing deductions and credits when a retur of income has not been filed by or on behalf of a foreign
corporation, see section 882( c )(2) and the regulations thereunder, and paragraph (b )(2)

and (3) of S 1.535-1.

(5) Effective date. This paragraph shall apply for taxable years beginning after December 31, 1966, except that it shall not be applied to require (i) the fiing of a return for any taxable year ending before January 1, 1974, which, pursuant to instructions applicable to the retur, is not required to be fied or (ii) the amendment of a return for such a taxable year which, pursuant to such instructions, is required to be filed. For corresponding rules applicable to taxable years beginning before January 1, 1967, see 26
CFR 1.6012- 2(g) (Revised as of Januar 1, 1967).

(h) Electing small business corporations. An electing small business corporation, whether or not subject to the tax imposed by section 1378, shall make a retur on Form 1 120-S. See also section 6037 and the regulations thereunder.
(i) Items of tax preference--(1) In general. Every corporation required to make a return

tax preference (described in section 57 and the regulation thereunder) in an amount specified by Form 4626, shall file such form as part of its return.
under this section, and having items of

(2) Organizations with unrelated business income and foreign corporations.
Regardless of the provisions of paragraphs (e) and (g) of this section, any organization
described in either such paragraph having items of

tax preference (described in section 57

and the regulations thereunder) in any amount entering into the computation or unrelated
business income is required to make a retur on form 990- T or form 120F, respectively,
and to attach the required form as part of such retur.

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G) Other provisions. For returns by fiduciaries for corporations, see S 1.6012-3. For information returs by corporations regarding payments of dividends, see §§ 1.6042- 1 to 1.6042-3, inclusive; regarding corporate dissolutions or liquidations, see S 1.6043-1; regarding distributions in liquidation, see § 1.6043-2; regarding payments of patronage dividends, see §§ 1.6044-1 to 1.6044-4, inclusive; and regarding certain payments of interest, see §& 1.6049- 1 and 1.6049-2. For information returs of officers, directors, and
shareholders of

foreign personal holding companies, as defined in section 552, see.§

1.6035- 1 and 1.6035-2. For returs as to formation or reorganization of foreign

corporations, see SS 1.6046- 1 to 1.6046-3, inclusive.
(k) (Reserved). For furher guidance, see S 1.6012-2T(k)(1).

(T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6523, 25 FR 13883, Dec. 29, 1960; T.O. 6533, 26 FR 405, Jan. 19, 1961; T.D. 6628, 27 FR 12794, Dec. 28, 1962; T.D. 6643, 28 FR 3163, April 2, 1963; T.O. 6960, 33 FR 9302, June 25, 1968; T.D. 7244, 37 FR 28897, Dec. 30. 1972: T.D. 7293, 38 FR 32803, Nov. 28, 1973; T.D. 7332, 39 FR
44233, Dec. 23, 1974; T.D. 7564, 43 FR 40497, Sept. 12, 1978; T.D. 7579, 43 FR 59356, Dec. 20, 1978; T.D. 7838, 47 FR 44248, Oct. 7, 1982; T. D. 71 FR 30606, May 30, 2006)

Current through November 16,2006; 71 FR 66693

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Treas. Reg. § 301.6402-2
CODE OF FEDERAL REGULATIONS TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY SUBCHAPTER F --PROCEDURE AND ADMINISTRATION PART 301--PROCEDURE AND ADMINISTRATION ABA TEMENTS, CREDITS, AND REFUNDS PROCEDURE IN GENERAL
1. § 301.6402-2 Claims for credit or refud.

(a) Requirement that claim be fied. (1) Credits or refunds of overpayments may not be

allowed or made after the expiration of the statutory period of limitation properly applicable unless, before the expiration of such period, a claim therefor has been filed by the taxpayer. Furthermore, under section 7422, a civil action for refud may not be instituted unless a claim has been filed within the properly applicable period of limitation.

(2) In the case of a claim fied prior to April 15, 1968, the claim together with appropriate supporting evidence shall be fied in the office of the internal revenue officer to whom the tax was paid or with the assistant regional Commissioner (alcohol, tobacco, and firearms) where the regulations respecting the particular tax to which the claim relates specifically require the claim to be filed with that officer. Except as provided in
paragraph (b) of S 301.6091 - 1 (relating to hand-carried documents), in the case of a

14, 1968, the claim, together with appropriate supporting evidence, shall be fied (i) with the Director of International Operations if the tax was paid to him or (ii) with the assistant regional Commissioner (alcohol, tobacco, and firearms) where the regulations respecting the particular tax to which the claim relates specifically require the claim to be filed with that officer; otherwise, the claim with appropriate supporting evidence must be fied with the service center serving the internal revenue district in which the tax was paid. As to interest in the case of credits or refuds, see section 6611. See section 7502 for provisions treating timely mailng as timely fiing and section 7503 for time for fiing claim when the last day falls on Saturday, Sunday, or legal holiday.
claim filed after April

(b) Grounds set forth in claim. (1) No refud or credit wil be allowed after the
expiration of the statutory period of limitation applicable to the filing of a claim therefor except upon one or more of the grounds set forth in a claim fied before the expiration of such period. The claim must set forth in detail each ground upon which a credit or refud is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. The statement of the grounds and facts must be verified by a written declaration that it is made under the penalties of perjury. A claim which does not comply with this paragraph wil not be considered for any purose as a claim for refud or credit.

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the regional service center has (2) Neither the district director nor the director of authority to refud on equitable grounds penalties or other amounts legally collected.

(c) Form for fiing claim. Except for claims fied after June 30, 1976 for the refunding of overpayment of income taxes, all claims by taxpayers for the refunding of taxes, interest, penalties, and additions to tax shall be made on Form 843. For special rules applicable to income tax, see S 301.6402-3. For other provisions relating to credits and refunds of taxes other than income tax, see the regulations relating to the particular tax.
(d) Separate claims for separate taxable periods. In the case of income, gift, and
Federal unemployment taxes, a separate claim shall be made for each tye of

tax for each

taxable year or period.

(e) Proof of representative capacity. If a return is fied by an individual and, after his

death, a refund claim is fied by his legal representative, certified copies of the letters
testamentary, letters of administration, or other similar evidence claim, to show the authority of the legal representative to fie the claim. If

must be anexed to the

an executor, administrator, guardian, trustee, receiver, or other fiduciary files a return and thereafter a refund claim is filed by the same fiduciary, documentary evidence to establish the legal authority of the fiduciar need not accompany the claim, provided a statement is made in the claim showing that the return was filed by the fiduciary and that the latter is stil acting. In such cases, if a refund is to be paid, letters testamentary, letters of administration, or other evidence may be required, but should be submitted only upon the receipt of a specific request therefor. If a claim is filed by a fiduciary other than the one by whom the retur was filed, the necessary documentary evidence should accompany the claim. A claim may be executed by an agent of the person assessed, but in such case a power of attorney must accompany the claim.
(t) Mailng of refund check. (1) Checks in payment of claims allowed wil be drawn in

the names of the persons entitled to the money and, except as provided in subparagraph this paragraph (f), the checks may be sent direct to the claimant or to such person (2) of in care of an attorney or agent who has fied a power of attorney specifically authorizing him to receive such checks.
(2) Checks in payment of claims which have either been reduced to judgment or settled in the course or as a result of litigation wil be drawn in the name of the person or persons entitled to the money and wil be sent to the Assistant Attorney General, Tax Division, Department of Justice, for delivery to the taxpayer or the counsel of record in the cour proceeding.

(3) For restrictions on the assignment of claims, see section 3477 of

the Revised Statutes

(31 U.S.C. 203).

Curent through November 16,2006; 71 FR 66693

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Treas. Reg. § 301.7701-2
CODE OF FEDERAL REGULATIONS TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY SUBCHAPTER F --PROCEDURE AND ADMINISTRATION PART 301--PROCEDURE AND ADMINISTRATION DEFINITIONS § 301.7701-2 Business entities; definitions.

this section and § 301.7701-3, a business entity is (a) Business entities. For purposes of any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301.7701-3) that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Internal Revenue Code. A business entity with two or more members is classified for federal tax puroses as either a corporation or a partnership. A business entity with only one owner is classified as a corporation or is disregarded; if the entity is disregarded, its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner.
(b) Corporations. For federal tax purposes, the term corporation means--

(1) A business entity organized under a Federal or State statute, or under a statute of a federally recognized Indian tribe, if the statute describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic;

(2) An association (as determined under 301.7701-3);
(3) A business entity organized under a State statute, if the statute describes or refers to the entity as a joint-stock company or joint-stock association;
(4) An insurance company;

(5) A State-chartered business entity conducting banking activities, if any of its deposits are insured under the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1811 et seq., or a similar federal statute; (6) A business entity wholly owned by a State or any political subdivision thereof, or a business entity wholly owned by a foreign governent or any other entity described in §
1.892-2T;

Revenue Code other than section 770

(7) A business entity that is taxable as a corporation under a provision of the Internal 1 (a)(3); and
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(8) Certain foreign entities--(i) In general. Except as provided in paragraphs (b )(8)(ii) and (d) of this section, the following business entities formed in the following jurisdictions:
* * *

(ii) Clarification of list of corporations in paragraph (b )(8)(i) of this section--(A) Exceptions in certain cases. The following entities wil not be treated as corporations under paragraph (b )(8)(i) of this section:

(1) With regard to Canada, a Nova Scotia Unlimited Liability Company (or any other company or corporation all of whose owners have unlimited liability pursuant to federal or provincial law).
(2) With regard to India, a company deemed to be a public limited company solely by operation of section 43A(1) (relating to corporate ownership of the company), section 43A(lA) (relating to annual average turnover), or section 43A(1B) (relating to ownership interests in other companies) of the Companies Act, 1956 (or any combination of these), provided that the organizational documents of such deemed public limited company continue to meet the requirements of section 3(1 )(iii) of the Companies Act, 1956.
(3) With regard to Malaysia, a Sendirian Berhad.

(B) Inclusions in certain cases. With regard to Mexico, the term Sociedad Anonima includes a Sociedad Anonima that chooses to apply the variable capital provision of Mexican corporate law (Sociedad Anonima de Capital Variable).
this section, with regard to Cyprus, Hong Kong, and Jamaica, the term Public Limited Company includes any Limited Company that is not defined as a private company under the corporate laws of those jurisdictions. In all other cases, where the term Public Limited Company is not defined, that term shall include any Limited Company defined as a public company under the corporate laws of the relevant jurisdiction.
(ii) Public companies. For purposes of paragraph (b)(8)(i) of

(iv) (Reserved)

an entity listed in paragraph (b)(8)(i) of this section shall be disregarded. For example, an entity formed under the laws of Switzerland as a Societe Anonyme will be a corporation and treated in the same manner as an Aktiengesellschaft.
(v) Multilngual countries. Different linguistic renderings of the name of

(vi) Certain European entities. (Reserved). For fuher guidance, see § 301.7701-2T.

(9) Business entities with multiple charters. (i) An entity created or organized under

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the laws of more than one jurisdiction if the rules of this section would treat it as a corporation with reference to anyone of the jurisdictions in which it is created or organized. Such an entity may elect its classification under § 301.7701-3, subject to the limitations of those provisions, only if it is created or organized in each jurisdiction in a manner that meets the definition of an eligible entity in § 301.7701-3(a). The determination of a business entity's corporate or non-corporate classification is made independently from the determination of whether the entity is domestic or foreign. See § 301.7701-5 for the rules that determine whether a business entity is domestic or foreign.
(ii) Examples. The following examples ilustrate the rule of

this paragraph (b)(9):

Country A as an entity that is listed in paragraph (b)(8)(i) of of

Example 1. (i) Facts. X is an entity with a single owner organized under the laws of this section. Under the rules
this section, such an entity is a corporation for Federal tax puroses and under §

301.7701-3(a) is unable to elect its classification. Several years after its formation, X files a certificate of domestication in State B as a limited liability company (LLC). Under the laws of State B, X is considered to be created or organized in State B as an LLC upon the filing of the certificate of domestication and is therefore subject to the laws of State
B. Under the rules of

this section and 301.7701-3, an LLC with a single owner organized

only in State B is disregarded as an entity separate from its owner for Federal tax purposes (absent an election to be treated as an association). Neither Country A nor State B law requires X to terminate its charer in Country A as a result of the domestication, and in fact X does not terminate its Country A charter. Consequently, X is now organized in more than one jurisdiction.

(ii) Result. X remains organized under the laws of Country A as an entity that is listed in paragraph (b )(8)(i) of this section, and as such, it is an entity that is treated as a corporation under the rules of this section. Therefore, X is a corporation for Federal tax purposes because the rules of this section would treat X as a corporation with reference to one of the jurisdictions in which it is created or organized. Because X is organized in Country A in a manner that does not meet the definition of an eligible entity in §
301.7701-3(a), it is unable to elect its classification.

Example 2. (i) Facts. Y is an entity that is incorporated under the laws of State A and has two shareholders. Under the rules of this section, an entity incorporated under the
laws of

State A is a corporation for Federal tax puroses and under § 301.7701-3(a) is

unable to elect its classification. Several years after its formation, Y fies a certificate of continuance in Country B as an unlimited company. Under the laws of Country B, upon fiing a certificate of continuance, Y is treated as organized in Country B. Under the rules of this section and § 301.7701-3, an unlimited company organized only in Country B that has more than one owner is treated as a partnership for Federal tax purposes (absent an election to be treated as an association). Neither State A nor Country B law requires Y to terminate its charter in State A as a result of the continuance, and in fact Y does not terminate its State A charter. Consequently, Y is now organized in more than one jurisdiction.
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corporation under the rules of

(ii) Result. Y remains organized in State A as a corporation, an entity that is treated as a this section. Therefore, Y is a corporation for Federal tax

puroses because the rules of this section would treat Y as a corporation with reference to

the jurisdictions in which it is created or organized. Because Y is organized in State A in a manner that does not meet the definition of an eligible entity in § 301.77013(a), it is unable to elect its classification.
one of

Example 3. (i) Facts. Z is an entity that has more than one owner and that is recognized under the laws of Country A as an unlimited company organized in Country A. Z is organized in Country A in a manner that meets the definition of an eligible entity in § 301.7701-3(a). Under the rules of this section and § 301.7701-3, an unlimited company organized only in Country A with more than one owner is treated as a partnership for
Federal tax puroses (absent an election to be treated as an association). At the time Z

was formed, it was also organized as a private limited company under the laws of Country B. Z is organized in Country B in a manner that meets the definition of an eligible entity in § 301.7701-3(a). Under the rules of this section and § 301.7701-3, a private limited company organized only in Country B is treated as a corporation for Federal tax purposes (absent an election to be treated as a partnership). Thus, Z is organized in more than one jurisdiction. Z has not made any entity classification
elections under § 301.7701-3.

treated (absent an election to the contrary) as a corporation under the rules of

(ii) Result. Z is organized in Country B as a private limited company, an entity that is this section. However, because Z is organized in each jurisdiction in a manner that meets the definition of an eligible entity in § 301.7701-3(a), it may elect its classification under § 301.7701-3, subject to the limitations of those provisions.

Example 4. (i) Facts. P is an entity with more than one owner organized in Country A as a general partnership. Under the rules of this section and § 301.7701-3, an eligible entity with more than one owner in Country A is treated as a partnership for federal tax purposes (absent an election to be treated as an association). P fies a certificate of
continuance in Country B as an unlimited company. Under the rules of

this section and §

301.7701-3, an unlimited company in Country B with more than one owner is treated as a partnership for federal tax purposes (absent an election to be treated as an association). P is not required under either the laws of Country A or Country B to terminate the general partnership in Country A, and in fact P does not terminate its Country A partnership. P is now organized in more than one jurisdiction. P has not made any entity classification
elections under § 301.7701-3.

(ii) Result. pis organization in both Country A and Country B would result in P being classified as a partnership. Therefore, since the rules of this section would not treat P as a corporation with reference to any jurisdiction in which it is created or organized, it is not a corporation for federal tax purposes.

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(c) Other business entities. For federal tax purposes--

paragraph (b) of

(1) The term partnership means a business entity that is not a corporation under this section and that has at least two members.

(2) Wholly owned entities--(i) In general. A business entity that has a single owner and is not a corporation under paragraph (b) of this section is disregarded as an entity separate from its owner.
(ii) Special rule for certain business entities. If the single owner of a business entity is

a bank (as defined in section 581, or, in the case of a foreign bank, as defined in section 585(a)(2)(B) without regard to the second sentence thereof), then the special rules applicable to banks under the Internal Revenue Code wil continue to apply to the single owner as if the wholly owned entity were a separate entity. For this purpose, the special rules applicable to banks under the Internal Revenue Code do not include the rules under
sections 864( c), 882( c), and 884.
(ii) Tax liabilties of certain disregarded entities--(A) In general. An entity that is

otherwise disregarded as separate from its owner is treated as an entity separate from its owner for puroses of:
(1) Federal tax liabilities of

the entity with respect to any taxable period for which the

entity was not disregarded.

(2) Federal tax liabilities of any other entity for which the entity is liable.
(3) Refuds or credits of

Federal tax.

(B) Examples. The following examples ilustrate the application of paragraph (c )(2)(iii)(A) of this section:
Example 1. In 2001, X, a domestic corporation that reports its taxes on a calendar year basis, merges into Z, a domestic LLC wholly owned by Y that is disregarded as an entity separate from Y, in a state law merger. X was not a member of a consolidated group at any time during its taxable year ending in December 2000. Under the applicable state law, Z is the successor to X and is liable for all ofX's debts. In 2004, the Internal Revenue Service (IRS) seeks to extend the period of limitations on assessment for XIS
2000 taxable year. Because Z is the successor to X and is liable for XIS 2000 taxes that

remain unpaid, Z is the proper part to sign the consent to extend the period of limitations.
Example 2. The facts are the same as in Example 1, except that in 2002, the IRS determines that X miscalculated and underreported its income tax liabilty for 2000. Because Z is the successor to X and is liable for X's 2000 taxes that remain unpaid, the deficiency may be assessed against Z and, in the event that Z fails to pay the liability
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after notice and demand, a general tax lien wil arise against all of Z's propert and rights to propert.

provided in paragraph (d)(3) of paragraph (b)(8)(i) of (b)(8)(i) of

(d) Special rule for certain foreign business entities--(1) In general. Except as this section, a foreign business entity described in this section wil not be treated as a corporation under paragraph
this section if--

(i) The entity was in existence on May 8, 1996;
(ii) The entity's classification was relevant (as defined in § 301.7701- 3( d)) on May 8,
1996;

(ii) No person (including the entity) for whom the entity's classification was relevant on May 8, 1996, treats the entity as a corporation for purposes of fiing such person's federal income tax returns, information returns, and withholding documents for the taxable year including May 8, 1996;
(iv) Any change in the entity's claimed classification within the sixty months prior to May 8, 1996, occurred solely as a result of a change in the organizational documents of the entity, and the entity and all members of the entity recognized the federal tax consequences of any change in the entity's classification within the sixty months prior to May 8, 1996;

(v) A reasonable basis (within the meaning of section 6662) existed on May 8, 1996, for treating the entity as other than a corporation; and
(vi) Neither the entity nor any member was notified in writing on or before May 8, 1996, that the classification of the entity was under examination (in which case the entity's classification wil be determined in the examination).

(2) Binding contract rule. If a foreign business entity described in paragraph (b )(8)(i) of this section is formed after May 8, 1996, pursuant to a written binding contract (including an accepted bid to develop a project) in effect on May 8, 1996, and all times thereafter, in which the parties agreed to engage (directly or indirectly) in an active and substantial business operation in the jurisdiction in which the entity is formed, paragraph (d)(l) of this section wil be applied to that entity by substituting the date of the entity's formation for May 8, 1996.

(3) Termination of grandfather status--(i) In general. An entity that is not treated as a corporation under paragraph (b )(8)(i) of this section by reason of paragraph (d)(l) or (d)(2) of this section wil be treated permanently as a corporation under paragraph (b )(8)(i) of this section from the earliest of:
(A) The effective date of

an election to be treated as an association under § 301.7701-3;
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the partnership under section 708(b)(1)(B) (regarding sale or (B) A termination of exchange of 50 percent or more of the total interest in an entity's capital or profits within a twelve month period);
(C) A division of

the partnership under section 708(b)(2)(B); or
the entity as of

(D) The date any person or persons, who were not owners of

November

29, 1999, own in the aggregate a 50 percent or greater interest in the entity.
(ii) Special rule for certain entities. For purposes of paragraph (d)(3)(i)(B) of this section shall not apply if paragraph (d)(2) of the sale or exchange of

this section,
interests in

the entity is to a related person (within the meaning of sections 267(b) and 707(b)) and occurs no later than twelve months after the date of the formation of the entity.

(e) Effective date. (1) Except as otherwise provided in this paragraph (e), the rules of this section applies on or after January 14,2002, to a business entity wholly owned by a foreign
this section apply as of January 1, 1997, except that paragraph (b)(6) of

governent regardless of any prior entity classification, and paragraph (c )(2)(ii) of this
Finnish, Maltese, and Norwegian entities in paragraph (b)(8)(i) of

section applies to taxable years beginning after January 12,2001. The reference to the this section is applicable on November 29, 1999. The reference to the Trinidadian entity in paragraph
(b)(8)(i) of

this section applies to entities formed on or after November 29, 1999. Any

Maltese or Norwegian entity that becomes an eligible entity as a result of paragraph this section in effect on November 29, 1999, may elect by February 14,2000, (b)(8)(i) of
to be classified for Federal tax puroses as an entity other than a corporation retroactive

to any period from and including January 1, 1997. Any Finnish entity that becomes an eligible entity as a result of paragraph (b)(8)(i) of this section in effect on November 29,
1999, may elect by February 14, 2000, to be classified for Federal tax puroses as an

entity other than a corporation retroactive to any period from and including September 1, 1997. However, paragraph (d)(3)(i)(D) of this section applies on or after October 22, 2003.
(2) Paragraph (c)(2)(iii) of this section applies on or after April

1, 2004.

this section, the rules of this section apply as of August 12,2004, to all business entities existing on or after that date.
(3)(i) General rule. Except as provided in paragraph (e)(3)(ii) of paragraph (b)(9) of (ii) Transition rule. For business entities created or organized under the laws of more than one jurisdiction as of August 12, 2004, the rules of paragraph (b )(9) of this section apply as of May 1,2006. These entities, however, may rely on the rules of paragraph this section as of August 12,2004. (b)(9) of

entities in paragraph (b)(8)(i) of

(4) The reference to the Estonian, Latvian, Liechtenstein, Lithuanian, and Slovenian this section applies to such entities formed on or after
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October 7,2004, and to any such entity formed before such date from the date any person or persons, who were not owners of the entity as of October 7, 2004, own in the aggregate a 50 percent or greater interest in the entity. The reference to the European Economic AreaÆuropean Union entity in paragraph (b)(8)(i) of this section applies to such entities formed on or after October 8, 2004.
Current through September 13,2006; 71 FR 54194

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26 C.F.R. § 301.7701-3

Treas. Reg. § 301.7701-3

CODE OF FEDERAL REGULA nONS TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY SUBCHAPTER F --PROCEDURE AND ADMINISTRATION PART 301--PROCEDURE AND ADMINISTRATION DEFINITIONS
§ 301.7701-3 Classification of

certain business entities.

(a) In general. A business entity that is not classified as a corporation under § 301.77012(b )(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its classification for federal tax purposes as provided in this section. An eligible entity with at least two members can elect to be classified as either an association (and thus a corporation under § 301.7701-2(b)(2)) or a partnership, and an eligible entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner. Paragraph (b) of this section provides a default classification for an eligible entity that does not make an election. Thus, elections are necessary only when an eligible entity chooses to be classified initially as other than the default classification or when an eligible entity chooses to change its classification. An entity whose classification is determined under the default classification retains that classification (regardless of any changes in the members' liability that occurs at any time during the time that the entity's classification is relevant as defined in paragraph (d) of this section) until the entity makes an election to change that classification under paragraph (c)(1) of this section. Paragraph (c) of this section provides rules for making express elections. Paragraph (d) of this section provides special rules for foreign eligible entities. Paragraph (e) of this section
provides special rules for classifying entities resulting from parnership terminations and

divisions under section 708(b). Paragraph (f) ofthis section sets forth the effective date of this section and a special rule relating to prior periods.
(b) Classifcation of eligible entities that do not fie an election--(I) Domestic eligible entities. Except as provided in paragraph (b)(3) of this section, unless the entity elects otherwise, a domestic eligible entity is--

(i) A partnership if it has two or more members; or
(ii) Disregarded as an entity separate from its owner if it has a single owner.

(2) Foreign eligible entities--(i) In general. Except as provided in paragraph (b)(3) of this section, unless the entity elects otherwise, a foreign eligible entity is--

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(A) A partnership if it has two or more members and at least one member does not have limited liability; (B) An association if all members have limited liability; or
(C) Disregarded as an entity separate from its owner if it has a single owner that does not have limited liability.

(ii) Definition of limited liabilty. For puroses of paragraph (b )(2)(i) of this section, a member of a foreign eligible entity has limited liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member. This determination is based solely on the statute or law pursuant to which the entity is organized, except that if the underlying statute or law allows the entity to specify in its organizational documents whether the members wil have limited liability, th,e organizational documents may also be relevant. For puroses of this section, a member has personal liabilty if the creditors of the entity may seek satisfaction of all or any portion of the debts or claims against the entity from the member as such. A member has personal liability for puroses of this paragraph even if the member makes an agreement under which another person (whether or not a member of the entity) assumes such liability or agrees to indemnify that member for any such liability.
(3) Existing eligible entities--(i) In general. Unless the entity elects otherwise, an eligible entity in existence prior to the effective date of this section wil have the same classification that the entity claimed under §§ 301.7701-1 through 301.7701-3 as in effect on the date prior to the effective date of this section; except that if an eligible entity with a single owner claimed to be a partnership under those regulations, the entity wil be disregarded as an entity separate from its owner under this paragraph (b)(3)(i). For special rules regarding the classification of such entities prior to the effective date of this
section, see paragraph (h)(2) of

this section.

this section, a foreign eligible entity is treated as being in existence prior to the effective date of this section only if the entity's classification was relevant (as defined in paragraph (d) of this section) at any time during the sixty months prior to the effective date of this section. If an entity claimed different classifications prior to the effective date of this section, the entity's classification for purposes of paragraph (b )(3)(i) of this section is the last classification claimed by the entity. If a foreign eligible entity's classification is relevant prior to the effective date of this section, but no federal tax or information return is filed or the federal tax or information retur does not indicate the classification of the entity, the entity's classification for the period prior to the effective date of this section is determined under the regulations in effect on the date prior to the effective date of this section.
(ii) Special rules. For purposes of paragraph (b)(3)(i) of

paragraphs (c)(l)(iv) and (v) of

(c) Elections--(1) Time and place for fiing--(i) In general. Except as provided in this section, an eligible entity may elect to be classified
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other than as provided under paragraph (b) of this section, or to change its classification, by fiing Form 8832, Entity Classification Election, with the service center designated on Form 8832. An election wil not be accepted unless all of the information required by the
form and instructions, including the taxpayer identifying number of

the entity, is

provided on Form 8832. See § 301.6109-1 for rules on applying for and displaying Employer Identification Numbers.

(ii) (Reserved). For furher guidance, see § 301.7701-3T(c)(I)(ii).
this section (ii) Effective date of election. An election made under paragraph (c)(l)(i) of wil be effective on the date specified by the entity on Form 8832 or on the date fied if no such date is specified on the election form. The effective date specified on Form 8832 can not be more than 75 days prior to the date on which the election is filed and can not be more than 12 months after the date on which the election is filed. If an election specifies an effective date more than 75 days prior to the date on which the election is
fied, it wil be effective 75 days prior to the date it was fied. If an election specifies an

effective date more than 12 months from the date on which the election is fied, it will be effective 12 months after the date it was fied. If an election specifies an effective date before January 1, 1997, it wil be effective as of January 1, 1997. If a purchasing corporation makes an election under section 338 regarding an acquired subsidiary, an election under paragraph (c)(1 )(i) of this section for the acquired subsidiary can be effective no earlier than the day after the acquisition date (within the meaning of section 338(h)(2)).
(iv) Limitation. If an eligible entity makes an election under paragraph (c)(1 )(i) of this section to change its classification (other than an election made by an existing entity to change its classification as of the effective date of this section), the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election. However, the Commissioner may permit the entity to change its classification by election within the sixty months if more than fift percent of the ownership interests in the entity as of the effective date of the subsequent election are owned by persons that did not own any interests in the entity on the fiing date or on the effective date of the entity's prior election. An election by a newly formed eligible entity that is effective on the date of formation is not considered a change for puroses of this paragraph (c)(1)(iv).

(v) Deemed elections--(A) Exempt organizations. An eligible entity that has been determined to be, or claims to be, exempt from taxation under section 501(a) is treated as having made an election under this section to be classified as an association. Such election wil be effective as of the first day for which exemption is claimed or determined to apply, regardless of when the claim or determination is made, and wil remain in effect unless an election is made under paragraph (c)(l)(i) of this section after the date the claim for exempt status is withdrawn or rejected or the date the determination of exempt status is revoked.

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(B) Real estate investment trusts. An eligible entity that files an election under section
856( c)(1) to be treated as a real estate investment trust is treated as having made an

election under this section to be classified as an association. Such election wil be effective as of the first day the entity is treated as a real estate investment trust.
(C) S corporations. An eligible entity that timely elects to be an S corporation under section 1362(a)(1) is treated as having made an election under this section to be classified as an association, provided that (as of the effective date of the election under section 1362(a)(1)) the entity meets all other requirements to qualify as a small business corporation under section 1361(b). Subject to § 301.7701-3(c)(1)(iv), the deemed election to be classified as an association wil apply as of the effective date of the S corporation election and wil remain in effect until the entity makes a valid election, under § 301.7701-3(c)(1)(i), to be classified as other than an association.
(vi) Examples. The following examples ilustrate the rules of

this paragraph (c)(l):

Example 1. On July 1, 1998, X, a domestic corporation, purchases a 10% interest in Y, an eligible entity formed under Country A law in 1990. The entity's classification was not relevant to any person for federal tax or information puroses prior to X's acquisition of an interest in Y. Thus, Y is not considered to be in existence on the effective date of this section for purposes of paragraph (b)(3) of this section. Under the applicable Country A statute, all members ofY have limited liability as defined in paragraph (b)(2)(ii) of this section. Accordingly, Y is classified as an association under paragraph (b)(2)(i)(B) of this section unless it elects under this paragraph (c) to be classified as a partnership. To be classified as a partnership as of July 1, 1998, Y must file a Form 8832 by September 14, 1998. See paragraph (c)(1 )(i) of this section. Because an election cannot be effective more than 75 days prior to the date on which it is filed, ifY files its Form 8832 after September 14, 1998, it wil be classified as an association from July 1, 1998, until the effective date of the election. In that case, it could not change its classification by election under this paragraph (c) during the sixty months succeeding the effective date of
the election.

on the effective date of

Example 2. (i) Z is an eligible entity formed under Country B law and is in existence this section within the meaning of paragraph (b)(3) of this section. Prior to the effective date of this section, Z claimed to be classified as an association. Unless Z fies an election under this paragraph (c), it wil continue to be
this section.

classified as an association under paragraph (b)(3) of

(ii) Z fies a Form 8832 pursuant to this paragraph (c) to be classified as a partnership, effective as of the effective date of this section. Z can fie an election to be classified as an association at any time thereafter, but then would not be permitted to change its classification by election during the sixty months succeeding the effective date of that
subsequent election.

(2) Authorized signatures--(i) In general. An election made under paragraph (c)(1 )(i)
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of

this section must be signed by--

(A) Each member of

the electing entity who is an owner at the time the election is fied;

or

the electing entity who is authorized (under law or the entity's organizational documents) to make the election and who represents to having such authorization under penalties of perjury.
(B) Any officer, manager, or member of local

(ii) Retroactive elections. For puroses of paragraph (c )(2)(i) of this section, if an

election under paragraph (c)(1 )(i) of this section is to be effective for any period prior to the time that it is fied, each person who was an owner between the date the election is to be effective and the date the election is fied, and who is not an owner at the time the
election is fied, must also sign the election.

(ii) Changes in classification. For paragraph (c )(2)(i) of this section, if an election under paragraph (c)(1 )(i) of this section is made to change the classification of an entity, each person who was an owner on the date that any transactions under paragraph (g) of this section are deemed to occur, and who is not an owner at the time the election is fied, must also sign the election. This paragraph (c )(2)(iii) applies to elections filed on or after November 29, 1999.

(d) Special rules for foreign eligible entities--(1) Definition of relevance-- (i) General rule. For purposes of this section, a foreign eligible entity's classification is relevant when its classification affects the liability of any person for federal tax or information
purposes. For example, a foreign entity's classification would be relevant if

U.S. income

was paid to the entity and the determination by the withholding agent of the amount to be withheld under chapter 3 of the Internal Revenue Code (if any) would vary depending upon whether the entity is classified as a partnership or as an association. Thus, the classification might affect the documentation that the withholding agent must receive from the entity, the tye of tax or information return to fie, or how the return must be prepared. The date that the classification of a foreign eligible entity is relevant is the date an event occurs that creates an obligation to fie a federal tax return, information return, or statement for which the classification of the entity must be determined. Thus, the classification of a foreign entity is relevant, for example, on the date that an interest in the entity is acquired which wil require a u.s. person to file an information retur on Form 5471.

provided in paragraph (d)(1)(ii)(B) of

(ii) Deemed relevance--(A) General rule. For puroses ofthis section, except as this section, the classification for Federal tax purposes of a foreign eligible entity that fies Form 8832, "Entity Classification Election", shall be deemed to be relevant only on the date the entity classification
election is effective.

(B) Exception. If the classification of a foreign eligible entity is relevant within the
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meaning of

paragraph (d)(1)(i) of

this section, then the rule in paragraph (d)(1)(ii)(A) of

this section shall not apply.

the classification of a foreign eligible entity has never been relevant (as defined in paragraph (d)(1) of this section), then the entity's classification will initially be determined pursuant to the provisions of paragraph (b )(2) of this section when the classification of the entity first becomes relevant (as defined in paragraph (d)(1)(i) of this section).
(2) Entities the classification of which has never been relevant. If

(3) Special rule when classification is no longer relevant. If the classification of a

this section) for 60 consecutive months, then the entity's classification wil initially be determined pursuant to the provisions of paragraph (b )(2) of this section when the classification of the foreign eligible entity becomes relevant (as defined in paragraph (d)(1)(i) of this section). The date that the classification of