§ 301.7701–1 26 CFR Ch. I (4–1–11 Edition)

Guam required to effectuate the provi- ate a separate entity for federal tax sions of this section shall be made purposes. For example, if two or more when convenient for the two govern- persons jointly construct a ditch mere- ments, but not less frequently than ly to drain surface water from their once in each calendar year. In com- properties, they have not created a sep- plying with paragraph (b) of this sec- arate entity for federal tax purposes. tion, only net balances will be trans- Similarly, mere co-ownership of prop- ferred between the two governments. erty that is maintained, kept in repair, Further, amounts transferred pursuant and rented or leased does not con- to paragraph (b) of this section may be stitute a separate entity for federal tax determined on the basis of estimates purposes. For example, if an individual rather than the actual amounts derived owner, or tenants in common, of farm from information furnished by tax- property lease it to a farmer for a cash payers, except that the net collections rental or a share of the crops, they do for 1973 and every third calendar year not necessarily create a separate enti- thereafter are to be transferred on the ty for federal tax purposes. basis of the information furnished by (3) Certain local law entities not recog- taxpayers pursuant to paragraph (d) of nized. An entity formed under local law this section. In order to facilitate the is not always recognized as a separate transfer of funds pursuant to this sec- tion, the Commissioner of Internal entity for federal tax purposes. For ex- Revenue and the Commissioner of Rev- ample, an organization wholly owned enue and Taxation of Guam shall ex- by a State is not recognized as a sepa- change such information, including rate entity for federal tax purposes if it copies of income tax returns, as will is an integral part of the State. Simi- ensure that the provisions of section larly, tribes incorporated under section 7654 and this section are being properly 17 of the Indian Reorganization Act of implemented. 1934, as amended, 25 U.S.C. 477, or under section 3 of the Oklahoma Indian Wel- [T.D. 7385, 40 FR 50265, Oct. 29, 1975] fare Act, as amended, 25 U.S.C. 503, are not recognized as separate entities for Definitions federal tax purposes. (4) Single owner organizations. Under § 301.7701–1 Classification of organiza- tions for federal tax purposes. §§ 301.7701–2 and 301.7701–3, certain orga- nizations that have a single owner can (a) Organizations for federal tax pur- choose to be recognized or disregarded poses—(1) In general. The Internal Rev- as entities separate from their owners. enue Code prescribes the classification (b) Classification of organizations. The of various organizations for federal tax classification of organizations that are purposes. Whether an organization is recognized as separate entities is deter- an entity separate from its owners for mined under §§ 301.7701–2, 301.7701–3, and federal tax purposes is a matter of fed- 301.7701–4 unless a provision of the In- eral tax law and does not depend on whether the organization is recognized ternal Revenue Code (such as section as an entity under local law. 860A addressing Real Estate Mortgage (2) Certain joint undertakings give rise Investment Conduits (REMICs)) pro- to entities for federal tax purposes. A vides for special treatment of that or- joint venture or other contractual ar- ganization. For the classification of or- rangement may create a separate enti- ganizations as trusts, see § 301.7701–4. ty for federal tax purposes if the par- That section provides that trusts gen- ticipants carry on a trade, business, fi- erally do not have associates or an ob- nancial operation, or venture and di- jective to carry on business for profit. vide the profits therefrom. For exam- Sections 301.7701–2 and 301.7701–3 pro- ple, a separate entity exists for federal vide rules for classifying organizations tax purposes if co- owners of an apart- that are not classified as trusts. ment building lease space and in addi- (c) Cost sharing arrangements. A cost tion provide services to the occupants sharing arrangement that is described either directly or through an agent. in § 1.482–7T of this chapter, including Nevertheless, a joint undertaking any arrangement that the Commis- merely to share expenses does not cre- sioner treats as a CSA under § 1.482–

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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-stock (d) Domestic and foreign business enti- company 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 corporation 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 Limited Company regarded as an entity separate from its Austria, Aktiengesellschaft owner under § 301.7701–3) that is not Barbados, Limited Company properly classified as a trust under Belgium, Societe Anonyme Belize, Public Limited Company § 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 partnership. 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, Aktieselskab 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) Corporations. 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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