Tuesday, October 10, 2006

Do not "check the insides of the box" because it is a disregarded entity

The US Check-the-Box regulations have through the years acquired international visibility. Basically, these regulations, which are in place since 1997, serve to determine the classification of business entities (both domestic and foreign) as a corporation, partnership or disregarded entity. Under those regulations an unincorporated entity may elect (by "checking" a box on a form) the classification it wishes and that is where the name check-the-box comes from! If no election is made, the entity is classified as a corporation or partnership (or branch) according to default rules, which are basically based on the liability of and number of the members. In addition, no election can be made where an entity is deemed to be a per se corporation.

A lot has been written on the impact of these rules both from a domestic and international perspective. Recently Alice G. Abreu (Temple University) made available a paper suggestively called “Paradise Kept: A Rule-Based Approach to the Analysis of Transactions Involving Disregarded Entities

Taking into account the recent trend in some European countries to provide some sort of check-the-box rules, perhaps this reading will bring some insights into the “unknown” world of disregarded entities.


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