IRS Issues Additional Guidance On Foreign Entities Making “Check-The-Box” Elections

The IRS has issued guidance on the topic of “relevance”, and some of the impacts it has had in the area of pre-immigration planning. The guidance addresses issues pertaining to so-called “check the box” elections, where non-US entities can designate their classification – as a corporation, partnership, or disregarded entity – for the purposes of US federal tax.

In summary, the IRS has clarified that in the case of a foreign eligible entity whose classification was never relevant, the initial filing of a Form 8832 should be deemed as an initial classification election. Notwithstanding the form of the election as an initial classification election, the impact of the election will be to trigger the deemed consequences that attach to a change in classification, as was outlined in the initial guidance from the IRS that was released in 2021. Further, the IRS confirmed in their frequently asked questions that although such an initial election will impact the consequences of a change in classification, such an entity will not be barred under the 60-month limitation from making a subsequent change in classification.

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