Internal Revenue Service, Treasury § 301.7701–2

7T(b)(5) of this chapter, is not recog- (2) An association (as determined nized as a separate entity for purposes under § 301.7701–3); of the Internal Revenue Code. See (3) A business entity organized under § 1.482–7T of this chapter for the rules a State statute, if the statute describes regarding CSAs. or refers to the entity as a joint- (d) Domestic and foreign business enti- or joint-stock association; ties. See § 301.7701–5 for the rules that (4) An insurance company; determine whether a business entity is (5) A State-chartered business entity domestic or foreign. conducting banking activities, if any of (e) State. For purposes of this section its deposits are insured under the Fed- and § 301.7701–2, the term State includes eral Deposit Insurance Act, as amend- the District of Columbia. ed, 12 U.S.C. 1811 et seq., or a similar (f) Effective/applicability dates. Except federal statute; as provided in the following sentence, (6) A business entity wholly owned by the rules of this section are applicable a State or any political subdivision as of January 1, 1997. The rules of para- thereof, or a business entity wholly graph (c) of this section are applicable owned by a foreign government or any on January 5, 2009. other entity described in § 1.892–2T; (7) A business entity that is taxable [T.D. 8697, 61 FR 66588, Dec. 18, 1996, as amended by T.D. 9153, 69 FR 49810, Aug. 12, as a under a provision of 2004; T.D. 9246, 71 FR 4816, Jan. 30, 2006; T.D. the Internal Revenue Code other than 9441, 74 FR 390, Jan. 5, 2009] section 7701(a)(3); and (8) Certain foreign entities—(i) In gen- § 301.7701–2 Business entities; defini- eral. Except as provided in paragraphs tions. (b)(8)(ii) and (d) of this section, the fol- (a) Business entities. For purposes of lowing business entities formed in the this section and § 301.7701–3, a business following jurisdictions: entity is any entity recognized for fed- American Samoa, Corporation eral tax purposes (including an entity Argentina, Sociedad Anonima with a single owner that may be dis- Australia, Public regarded as an entity separate from its Austria, owner under § 301.7701–3) that is not Barbados, Limited Company properly classified as a trust under Belgium, Societe Anonyme Belize, § 301.7701–4 or otherwise subject to spe- Bolivia, Sociedad Anonima cial treatment under the Internal Rev- Brazil, Sociedade Anonima enue Code. A business entity with two Bulgaria, Aktsionerno Druzhestvo. or more members is classified for fed- Canada, Corporation and Company eral tax purposes as either a corpora- Chile, Sociedad Anonima tion or a . A business entity People’s Republic of China, Gufen Youxian with only one owner is classified as a Gongsi Republic of China (Taiwan), Ku-fen Yu-hsien corporation or is disregarded; if the en- Kung-szu tity is disregarded, its activities are Colombia, Sociedad Anonima treated in the same manner as a sole Costa Rica, Sociedad Anonima proprietorship, branch, or division of Cyprus, Public Limited Company the owner. But see paragraphs (c)(2)(iv) Czech Republic, Akciova Spolecnost and (v) of this section for special em- Denmark, ployment and excise tax rules that Ecuador, Sociedad Anonima or Compania apply to an eligible entity that is oth- Anonima Egypt, Sharikat Al-Mossahamah erwise disregarded as an entity sepa- El Salvador, Sociedad Anonima rate from its owner. Estonia, Aktsiaselts (b) . For federal tax pur- European Economic Area/European Union, poses, the term corporation means— Societas Europaea (1) A business entity organized under Finland, Julkinen Osakeyhtio/Publikt a Federal or State statute, or under a Aktiebolag statute of a federally recognized Indian France, Societe Anonyme Germany, Aktiengesellschaft tribe, if the statute describes or refers Greece, Anonymos Etairia to the entity as incorporated or as a Guam, Corporation corporation, body corporate, or body Guatemala, Sociedad Anonima politic; Guyana, Public Limited Company

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Honduras, Sociedad Anonima (1) With regard to Canada, a Nova Hong Kong, Public Limited Company Scotia Unlimited Liability Company Hungary, Reszvenytarsasag (or any other company or corporation Iceland, Hlutafelag India, Public Limited Company all of whose owners have unlimited li- Indonesia, Perseroan Terbuka ability pursuant to federal or provin- Ireland, Public Limited Company cial law). Israel, Public Limited Company (2) With regard to India, a company Italy, Societa per Azioni deemed to be a public limited company Jamaica, Public Limited Company solely by operation of section 43A(1) Japan, Kabushiki Kaisha (relating to corporate ownership of the Kazakstan, Ashyk Aktsionerlik Kogham Republic of Korea, Chusik Hoesa company), section 43A(1A) (relating to Latvia, Akciju Sabiedriba annual average turnover), or section Liberia, Corporation 43A(1B) (relating to ownership inter- Liechtenstein, Aktiengesellschaft ests in other ) of the Compa- Lithuania, Akcine Bendroves nies Act, 1956 (or any combination of Luxembourg, Societe Anonyme these), provided that the organiza- Malaysia, Berhad Malta, Public Limited Company tional documents of such deemed pub- Mexico, Sociedad Anonima lic limited company continue to meet Morocco, Societe Anonyme the requirements of section 3(1)(iii) of Netherlands, the Companies Act, 1956. New Zealand, Limited Company (3) With regard to Malaysia, a Nicaragua, Compania Anonima Sendirian Berhad. Nigeria, Public Limited Company Northern Mariana Islands, Corporation (B) Inclusions in certain cases. With re- Norway, Allment Aksjeselskap gard to Mexico, the term Sociedad Pakistan, Public Limited Company Anonima includes a Sociedad Anonima Panama, Sociedad Anonima that chooses to apply the variable cap- Paraguay, Sociedad Anonima ital provision of Mexican Peru, Sociedad Anonima Philippines, Stock Corporation (Sociedad Anonima de Capital Vari- Poland, Spolka Akcyjna able). Portugal, Sociedade Anonima (iii) Public companies. For purposes of Puerto Rico, Corporation paragraph (b)(8)(i) of this section, with Romania, Societate pe Actiuni regard to Cyprus, Hong Kong, and Ja- Russia, Otkrytoye Aktsionernoy maica, the term Public Limited Com- Obshchestvo Saudi Arabia, Sharikat Al-Mossahamah pany includes any Limited Company Singapore, Public Limited Company that is not defined as a private com- Slovak Republic, Akciova Spolocnost pany under the corporate laws of those Slovenia, Delniska Druzba jurisdictions. In all other cases, where South Africa, Public Limited Company the term Public Limited Company is Spain, Sociedad Anonima not defined, that term shall include Surinam, Naamloze Vennootschap Sweden, Publika Aktiebolag any Limited Company defined as a pub- Switzerland, Aktiengesellschaft lic company under the corporate laws Thailand, Borisat Chamkad (Mahachon) of the relevant jurisdiction. Trinidad and Tobago, Limited Company (iv) Limited companies. For purposes Tunisia, Societe Anonyme of this paragraph (b)(8), any reference Turkey, Anonim Sirket to a Limited Company includes, as the Ukraine, Aktsionerne Tovaristvo Vidkritogo case may be, companies limited by Tipu United Kingdom, Public Limited Company shares and companies limited by guar- United States Virgin Islands, Corporation antee. Uruguay, Sociedad Anonima (v) Multilingual countries. Different Venezuela, Sociedad Anonima or Compania linguistic renderings of the name of an Anonima entity listed in paragraph (b)(8)(i) of (ii) Clarification of list of corporations this section shall be disregarded. For in paragraph (b)(8)(i) of this section—(A) example, an entity formed under the Exceptions in certain cases. The fol- laws of Switzerland as a Societe lowing entities will not be treated as Anonyme will be a corporation and corporations under paragraph (b)(8)(i) treated in the same manner as an Akti- of this section: engesellschaft.

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(b)(9) Business entities with multiple Example 2. (i) Facts. Y is an entity that is charters. (i) An entity created or orga- incorporated under the laws of State A and nized under the laws of more than one has two shareholders. Under the rules of this jurisdiction if the rules of this section section, an entity incorporated under the laws of State A is a corporation for Federal would treat it as a corporation with tax purposes and under § 301.7701–3(a) is un- reference to any one of the jurisdic- able to elect its classification. Several years tions in which it is created or orga- after its formation, Y files a certificate of nized. Such an entity may elect its continuance in Country B as an unlimited classification under § 301.7701–3, subject company. Under the laws of Country B, upon to the limitations of those provisions, filing a certificate of continuance, Y is treat- only if it is created or organized in ed as organized in Country B. Under the each jurisdiction in a manner that rules of this section and § 301.7701–3, an un- limited company organized only in Country meets the definition of an eligible enti- B that has more than one owner is treated as ty in § 301.7701–3(a). The determination a partnership for Federal tax purposes (ab- of a business entity’s corporate or non- sent an election to be treated as an associa- corporate classification is made inde- tion). Neither State A nor Country B law re- pendently from the determination of quires Y to terminate its charter in State A whether the entity is domestic or for- as a result of the continuance, and in fact Y eign. See § 301.7701–5 for the rules that does not terminate its State A charter. Con- sequently, Y is now organized in more than determine whether a business entity is one jurisdiction. domestic or foreign. (ii) Result. Y remains organized in State A (ii) Examples. The following examples as a corporation, an entity that is treated as illustrate the rule of this paragraph a corporation under the rules of this section. (b)(9): Therefore, Y is a corporation for Federal tax purposes because the rules of this section Example 1. (i) Facts. X is an entity with a would treat Y as a corporation with ref- single owner organized under the laws of erence to one of the jurisdictions in which it Country A as an entity that is listed in para- is created or organized. Because Y is orga- graph (b)(8)(i) of this section. Under the rules nized in State A in a manner that does not of this section, such an entity is a corpora- meet the definition of an eligible entity in tion for Federal tax purposes and under § 301.7701–3(a), it is unable to elect its classi- § 301.7701–3(a) is unable to elect its classifica- fication. tion. Several years after its formation, X Example 3. (i) Facts. Z is an entity that has files a certificate of domestication in State more than one owner and that is recognized B as a company (LLC). under the laws of Country A as an unlimited Under the laws of State B, X is considered to company organized in Country A. Z is orga- be created or organized in State B as an LLC nized in Country A in a manner that meets upon the filing of the certificate of domes- the definition of an eligible entity in tication and is therefore subject to the laws § 301.7701–3(a). Under the rules of this section of State B. Under the rules of this section and § 301.7701–3, an orga- and § 301.7701–3, an LLC with a single owner nized only in Country A with more than one organized only in State B is disregarded as owner is treated as a partnership for Federal an entity separate from its owner for Federal tax purposes (absent an election to be treat- tax purposes (absent an election to be treat- ed as an association). At the time Z was ed as an association). Neither Country A nor formed, it was also organized as a private State B law requires X to terminate its char- limited company under the laws of Country ter in Country A as a result of the domes- B. Z is organized in Country B in a manner tication, and in fact X does not terminate its that meets the definition of an eligible enti- Country A charter. Consequently, X is now ty in § 301.7701–3(a). Under the rules of this organized in more than one jurisdiction. section and § 301.7701–3, a private limited (ii) Result. X remains organized under the company organized only in Country B is laws of Country A as an entity that is listed treated as a corporation for Federal tax pur- in paragraph (b)(8)(i) of this section, and as poses (absent an election to be treated as a such, it is an entity that is treated as a cor- partnership). Thus, Z is organized in more poration under the rules of this section. than one jurisdiction. Z has not made any Therefore, X is a corporation for Federal tax entity classification elections under purposes because the rules of this section § 301.7701–3. would treat X as a corporation with ref- (ii) Result. Z is organized in Country B as erence to one of the jurisdictions in which it a , an entity that is is created or organized. Because X is orga- treated (absent an election to the contrary) nized in Country A in a manner that does not as a corporation under the rules of this sec- meet the definition of an eligible entity in tion. However, because Z is organized in each § 301.7701–3(a), it is unable to elect its classi- jurisdiction in a manner that meets the defi- fication. nition of an eligible entity in § 301.7701–3(a),

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it may elect its classification under (iv) Special rule for employment tax § 301.7701–3, subject to the limitations of purposes—(A) In general. Paragraph those provisions. (c)(2)(i) of this section (relating to cer- Example 4. (i) Facts. P is an entity with tain wholly owned entities) does not more than one owner organized in Country A apply to taxes imposed under Subtitle as a . Under the rules of this section and § 301.7701–3, an eligible enti- C—Employment Taxes and Collection ty with more than one owner in Country A is of Income Tax (Chapters 21, 22, 23, 23A, treated as a partnership for federal tax pur- 24, and 25 of the Internal Revenue poses (absent an election to be treated as an Code). Paragraph (c)(2)(i) of this sec- association). P files a certificate of continu- tion does apply to taxes imposed under ance in Country B as an unlimited company. Subtitle A, including Chapter 2—Tax Under the rules of this section and § 301.7701– on Self-Employment Income. The 3, an unlimited company in Country B with owner of an entity that is treated in more than one owner is treated as a partner- the same manner as a sole proprietor- ship for federal tax purposes (absent an elec- tion to be treated as an association). P is not ship under paragraph (a) of this section required under either the laws of Country A will be subject to the tax on self-em- or Country B to terminate the general part- ployment income. nership in Country A, and in fact P does not (B) [Reserved] For further guidance, terminate its Country A partnership. P is see § 301.7701–2T(c)(2)(iv)(B). now organized in more than one jurisdiction. (C) Example. The following example P has not made any entity classification illustrates the application of paragraph elections under § 301.7701–3. (c)(2)(iv) of this section: (ii) Result. P’s organization in both Coun- try A and Country B would result in P being Example. (i) LLCA is an eligible entity classified as a partnership. Therefore, since owned by individual A and is generally dis- the rules of this section would not treat P as regarded as an entity separate from its a corporation with reference to any jurisdic- owner for Federal tax purposes. However, tion in which it is created or organized, it is LLCA is treated as an entity separate from not a corporation for federal tax purposes. its owner for purposes of subtitle C of the In- ternal Revenue Code. LLCA has employees (c) Other business entities. For federal and pays wages as defined in sections 3121(a), tax purposes— 3306(b), and 3401(a). (1) The term partnership means a (ii) LLCA is subject to the provisions of business entity that is not a corpora- subtitle C of the Internal Revenue Code and tion under paragraph (b) of this section related provisions under 26 CFR subchapter C, Employment Taxes and Collection of In- and that has at least two members. come Tax at Source, parts 31 through 39. Ac- (2) Wholly owned entities—(i) In gen- cordingly, LLCA is required to perform such eral. Except as otherwise provided in acts as are required of an employer under this paragraph (c), a business entity those provisions of the Internal Revenue that has a single owner and is not a Code and regulations thereunder that apply. corporation under paragraph (b) of this All provisions of law (including penalties) and the regulations prescribed in pursuance section is disregarded as an entity sep- of law applicable to employers in respect of arate from its owner. such acts are applicable to LLCA. Thus, for (ii) Special rule for certain business en- example, LLCA is liable for income tax with- tities. If the single owner of a business holding, Federal Insurance Contributions entity is a bank (as defined in section Act (FICA) taxes, and Federal Unemploy- 581, or, in the case of a foreign bank, as ment Tax Act (FUTA) taxes. See sections defined in section 585(a)(2)(B) without 3402 and 3403 (relating to income tax with- regard to the second sentence thereof), holding); 3102(b) and 3111 (relating to FICA taxes), and 3301 (relating to FUTA taxes). In then the special rules applicable to addition, LLCA must file under its name and banks under the Internal Revenue Code EIN the applicable Forms in the 94X series, will continue to apply to the single for example, Form 941, ‘‘Employer’s Quar- owner as if the wholly owned entity terly Employment Tax Return,’’ Form 940, were a separate entity. For this pur- ‘‘Employer’s Annual Federal Unemployment pose, the special rules applicable to Tax Return;’’ file with the Social Security banks under the Internal Revenue Code Administration and furnish to LLCA’s em- do not include the rules under sections ployees statements on Forms W–2, ‘‘Wage and Tax Statement;’’ and make timely em- 864(c), 882(c), and 884. ployment tax deposits. See §§ 31.6011(a)–1, (iii) [Reserved] For further guidance, 31.6011(a)–3, 31.6051–1, 31.6051–2, and 31.6302–1 see § 301.7701–2T(c)(2)(iii). of this chapter.

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(iii) A is self-employed for purposes of sub- Under paragraph (c)(2)(v)(A)(1) of this sec- title A, chapter 2, Tax on Self-Employment tion, LLCB is the producer of the coal and is Income, of the Internal Revenue Code. Thus, liable for tax on its sale of such coal under A is subject to tax under section 1401 on A’s chapter 32 of the Internal Revenue Code. net earnings from self-employment with re- LLCB must report and pay tax on Form 720, spect to LLCA’s activities. A is not an em- ‘‘Quarterly Federal Excise Tax Return,’’ ployee of LLCA for purposes of subtitle C of under its own name and taxpayer identifica- the Internal Revenue Code. Because LLCA is tion number. treated as a of A for in- (iii) LLCB uses undyed diesel fuel in an come tax purposes, A is entitled to deduct earthmover that is not registered or required trade or business expenses paid or incurred to be registered for highway use. Such use is with respect to activities carried on through an off-highway business use of the fuel. LLCA, including the employer’s share of em- Under section 6427(l), the ultimate purchaser ployment taxes imposed under sections 3111 is allowed to claim an income tax credit or and 3301, on A’s Form 1040, Schedule C, payment related to the tax imposed on diesel ‘‘Profit or Loss for Business (Sole Propri- fuel used in an off-highway business use. etorship).’’ Under paragraph (c)(2)(v) of this section, for purposes of the credit or payment allowed (v) Special rule for certain excise tax under section 6427(l), LLCB is the person purposes—(A) In general. Paragraph that could claim the amount on its Form 720 (c)(2)(i) of this section (relating to cer- or on a Form 8849, ‘‘Claim for Refund of Ex- tain wholly owned entities) does not cise Taxes.’’ Alternatively, if LLCB did not apply for purposes of— claim a payment during the time prescribed (1) Federal tax liabilities imposed by in section 6427(i)(2) for making a claim under Chapters 31, 32 (other than section section 6427, § 1.34–1 of this chapter provides 4181), 33, 34, 35, 36 (other than section that B, the owner of LLCB, could claim the income tax credit allowed under section 34 4461), and 38 of the Internal Revenue for the nontaxable use of diesel fuel by Code, or any floor tax imposed LLCB. on articles subject to any of these (iv) [Reserved] For further guidance, see taxes; § 301.7701–2T(c)(2)(v)(C) Example (iv). (2) Collection of tax imposed by (d) Special rule for certain foreign busi- Chapter 33 of the Internal Revenue ness entities—(1) In general. Except as Code; provided in paragraph (d)(3) of this sec- (3) Registration under sections 4101, tion, a foreign business entity de- 4222, and 4412; and scribed in paragraph (b)(8)(i) of this (4) Claims of a credit (other than a section will not be treated as a cor- credit under section 34), refund, or pay- poration under paragraph (b)(8)(i) of ment related to a tax described in para- this section if— graph (c)(2)(v)(A)(1) of this section or (i) The entity was in existence on under section 6426 or 6427. May 8, 1996; (B) [Reserved] For further guidance, (ii) The entity’s classification was see § 301.7701–2T(c)(2)(v)(B). relevant (as defined in § 301.7701–3(d)) on (C) Example. The following example May 8, 1996; illustrates the provisions of this para- (iii) No person (including the entity) graph (c)(2)(v): for whom the entity’s classification Example. (i) LLCB is an eligible entity that was relevant on May 8, 1996, treats the has a single owner, B. LLCB is generally dis- entity as a corporation for purposes of regarded as an entity separate from its filing such person’s federal income tax owner. However, under paragraph (c)(2)(v) of returns, information returns, and with- this section, LLCB is treated as an entity separate from its owner for certain purposes holding documents for the taxable year relating to excise taxes. including May 8, 1996; (ii) LLCB mines coal from a coal mine lo- (iv) Any change in the entity’s cated in the United States. Section 4121 of claimed classification within the sixty chapter 32 of the Internal Revenue Code im- months prior to May 8, 1996, occurred poses a tax on the producer’s sale of such solely as a result of a change in the or- coal. Section 48.4121–1(a) of this chapter de- ganizational documents of the entity, fines a ‘‘producer’’ generally as the person in and the entity and all members of the whom is vested ownership of the coal under state law immediately after the coal is sev- entity recognized the federal tax con- ered from the ground. LLCB is the person sequences of any change in the entity’s that owns the coal under state law imme- classification within the sixty months diately after it is severed from the ground. prior to May 8, 1996;

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(v) A reasonable basis (within the (e) Effective/applicability date. (1) Ex- meaning of section 6662) existed on cept as otherwise provided in this para- May 8, 1996, for treating the entity as graph (e), the rules of this section other than a corporation; and apply as of January 1, 1997, except that (vi) Neither the entity nor any mem- paragraph (b)(6) of this section applies ber was notified in writing on or before on or after January 14, 2002, to a busi- May 8, 1996, that the classification of ness entity wholly owned by a foreign the entity was under examination (in government regardless of any prior en- which case the entity’s classification tity classification, and paragraph will be determined in the examina- (c)(2)(ii) of this section applies to tax- tion). able years beginning after January 12, (2) Binding contract rule. If a foreign 2001. The reference to the Finnish, Mal- business entity described in paragraph tese, and Norwegian entities in para- (b)(8)(i) of this section is formed after graph (b)(8)(i) of this section is applica- May 8, 1996, pursuant to a written bind- ble on November 29, 1999. The reference ing contract (including an accepted bid to the Trinidadian entity in paragraph to develop a project) in effect on May 8, (b)(8)(i) of this section applies to enti- 1996, and all times thereafter, in which ties formed on or after November 29, the parties agreed to engage (directly 1999. Any Maltese or Norwegian entity or indirectly) in an active and substan- that becomes an eligible entity as a re- tial business operation in the jurisdic- sult of paragraph (b)(8)(i) of this sec- tion in which the entity is formed, tion in effect on November 29, 1999, paragraph (d)(1) of this section will be may elect by February 14, 2000, to be applied to that entity by substituting classified for Federal tax purposes as the date of the entity’s formation for an entity other than a corporation ret- May 8, 1996. roactive to any period from and includ- (3) Termination of grandfather status— ing January 1, 1997. Any Finnish entity (i) In general. An entity that is not that becomes an eligible entity as a re- treated as a corporation under para- sult of paragraph (b)(8)(i) of this sec- graph (b)(8)(i) of this section by reason tion in effect on November 29, 1999, of paragraph (d)(1) or (d)(2) of this sec- may elect by February 14, 2000, to be tion will be treated permanently as a classified for Federal tax purposes as corporation under paragraph (b)(8)(i) of an entity other than a corporation ret- this section from the earliest of: roactive to any period from and includ- (A) The effective date of an election ing September 1, 1997. However, para- to be treated as an association under graph (d)(3)(i)(D) of this section applies § 301.7701–3; on or after October 22, 2003. (B) A termination of the partnership (2) [Reserved] For further guidance, under section 708(b)(1)(B) (regarding sale or exchange of 50 percent or more see § 301.7701–2T(e)(2). of the total interest in an entity’s cap- (3)(i) General rule. Except as provided ital or profits within a twelve month in paragraph (e)(3)(ii) of this section, period); the rules of paragraph (b)(9) of this sec- (C) A division of the partnership tion apply as of August 12, 2004, to all under section 708(b)(2)(B); or business entities existing on or after (D) The date any person or persons, that date. who were not owners of the entity as of (ii) Transition rule. For business enti- November 29, 1999, own in the aggre- ties created or organized under the gate a 50 percent or greater interest in laws of more than one jurisdiction as of the entity. August 12, 2004, the rules of paragraph (ii) Special rule for certain entities. For (b)(9) of this section apply as of May 1, purposes of paragraph (d)(2) of this sec- 2006. These entities, however, may rely tion, paragraph (d)(3)(i)(B) of this sec- on the rules of paragraph (b)(9) of this tion shall not apply if the sale or ex- section as of August 12, 2004. change of interests in the entity is to a (4) The reference to the Estonian, related person (within the meaning of Latvian, Liechtenstein, Lithuanian, sections 267(b) and 707(b)) and occurs no and Slovenian entities in paragraph later than twelve months after the (b)(8)(i) of this section applies to such date of the formation of the entity. entities formed on or after October 7,

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2004, and to any such entity formed be- (1) Federal tax liabilities of the enti- fore such date from the date any per- ty with respect to any taxable period son or persons, who were not owners of for which the entity was not dis- the entity as of October 7, 2004, own in regarded; the aggregate a 50 percent or greater (2) Federal tax liabilities of any interest in the entity. The reference to other entity for which the entity is lia- the European Economic Area/European ble; and Union entity in paragraph (b)(8)(i) of (3) Refunds or credits of Federal tax. this section applies to such entities (B) Examples. The following examples formed on or after October 8, 2004. illustrate the application of paragraph (5) Paragraph (c)(2)(iv) of this section (c)(2)(iii)(A) of this section: applies with respect to wages paid on or after January 1, 2009. Example 1. In 2006, X, a domestic corpora- (6) Paragraph (c)(2)(v) of this section tion that reports its taxes on a calendar year applies to liabilities imposed and ac- basis, merges into Z, a domestic LLC wholly tions first required or permitted in pe- owned by Y that is disregarded as an entity separate from Y, in a state law merger. X riods beginning on or after January 1, was not a member of a consolidated group at 2008. any time during its taxable year ending in (7) The reference to the Bulgarian en- December 2005. Under the applicable state tity in paragraph (b)(8)(i) of this sec- law, Z is the successor to X and is liable for tion applies to such entities formed on all of X’s debts. In 2009, the Internal Revenue or after January 1, 2007, and to any Service (IRS) seeks to extend the period of such entity formed before such date limitations on assessment for X’s 2005 tax- from the date that, in the aggregate, a able year. Because Z is the successor to X and is liable for X’s 2005 taxes that remain 50 percent or more interest in such en- unpaid, Z is the proper party to sign the con- tity is owned by any person or persons sent to extend the period of limitations. who were not owners of the entity as of Example 2. The facts are the same as in Ex- January 1, 2007. For purposes of the ample 1, except that in 2007, the IRS deter- preceding sentence, the term interest mines that X miscalculated and under- means— reported its income tax liability for 2005. Be- (i) In the case of a partnership, a cap- cause Z is the successor to X and is liable for ital or profits interest; and X’s 2005 taxes that remain unpaid, the defi- (ii) In the case of a corporation, an ciency may be assessed against Z and, in the event that Z fails to pay the liability after equity interest measured by vote or notice and demand, a general tax lien will value. arise against all of Z’s property and rights to [T.D. 8697, 61 FR 66589, Dec. 18, 1996, as property. amended by T.D. 8844, 64 FR 66583, Nov. 29, (c)(2)(iv)(A) [Reserved] For further 1999; T.D. 9012, 67 FR 49864, Aug. 1, 2002; T.D. 9093, 68 FR 60298, Oct. 22, 2003; T.D. 9153, 69 guidance, see § 301.7701–2(c)(2)(iv)(A). FR 49810, Aug. 12, 2004; T.D. 9183, 70 FR 9221, (B) Treatment of entity. An entity that Feb. 25, 2005; T.D. 9197, 70 FR 19698, Apr. 14, is disregarded as an entity separate 2005; T.D. 9235, 70 FR 74658, Dec. 16, 2005; T.D. from its owner for any purpose under 9246, 71 FR 4817, Jan. 30, 2006; T.D. 9356, 72 FR § 301.7701–2 is treated as a corporation 45893, Aug. 16, 2007; T.D. 9388, 73 FR 15065, with respect to taxes imposed under Mar. 21, 2008; T.D. 8697, 73 FR 18442, Apr. 4, Subtitle C—Employment Taxes and 2008; 73 FR 21415, Apr. 21, 2008; T.D. 9433, 73 Collection of Income Tax (Chapters 21, FR 72346, Nov. 28, 2008; T.D. 9462, 74 FR 46904, Sept. 14, 2009] 22, 23, 23A, 24, and 25 of the Internal Revenue Code). § 301.7701–2T Business entities; defini- (C) through (c)(2)(v)(A) [Reserved] tions (temporary). For further guidance, see § 301.7701– (a) through (c)(2)(ii) [Reserved] For 2(c)(2)(iv)(C) through (c)(2)(v)(A). further guidance, see § 301.7701–2(a) (B) Treatment of entity. An entity that through (c)(2)(ii). is disregarded as an entity separate (iii) Tax liabilities of certain dis- from its owner for any purpose under regarded entities—(A) In general. An en- § 301.7701–2 is treated as a corporation tity that is disregarded as separate with respect to items described in from its owner for any purpose under § 301.7701–2(c)(2)(v)(A). § 301.7701–2 is treated as an entity sepa- (C) Example. (i) through (iii) [Re- rate from its owner for purposes of— served] For further guidance, see

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