[4830-01-u]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301, and 602
[TD 8697]
RIN 1545-AT91
Simplification of Entity Classification Rules
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations that classify
certain business organizations under an elective regime. These
regulations replace the existing classification rules.
DATES: These regulations are effective as of January 1, 1997.
For dates of applicability of these regulations, see
Effective Dates under Supplementary Information.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations,
Mark D. Harris, (202) 622-3050; concerning foreign organizations,
William H. Morris or Ronald M. Gootzeit, (202) 622-3880 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final
regulations have been reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction
Act (44 U.S.C. 3507) under control number 1545-1486. Responses
to these collections of information are required to obtain a
benefit (to choose an entity's classification by election).
An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the
collection of information displays a valid control number.
The estimates of the reporting burden in these final
regulations are reflected in the burden estimates in Form 8832
(Entity Classification Election).
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer,
T:FP, Washington, DC 20224, and to the Office of Management and
Budget, Attn: Desk Officer for the Department of the Treasury,
Office of Information and Regulatory Affairs, Washington, DC
20503.
Books or records relating to these collections of
information must be retained as long as their contents may become
material in the administration of any internal revenue law.
Generally, tax returns and tax return information are
confidential, as required by 26 U.S.C. 6103.
Background
On April 3, 1995, Notice 95-14 (1995-1 C.B. 297), relating
to classification of business organizations under section 7701 of
the Code, was published in the Internal Revenue Bulletin. A
notice of public hearing was published in the Federal Register on
May 10, 1995 (60 FR 24813). Written comments were received and a
public hearing was held on July 20, 1995.
On May 13, 1996, the IRS and Treasury issued a notice of
proposed rulemaking (61 FR 21989 [PS-43-95, 1996-24 I.R.B. 20])
under section 7701. The regulations proposed to replace the
existing regulations for classifying certain business
organizations with an elective regime. Comments responding to
the notice were received, and a public hearing was held on August
21, 1996. After considering the comments that were received in
response to the notice of proposed rulemaking and the statements
made at the public hearing, the proposed regulations are adopted
as revised by this Treasury decision. The revisions are
discussed below.
Explanation of Provisions
Section 7701(a)(2) of the Code defines a partnership to
include a syndicate, group, pool, joint venture, or other
unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on, and that
is not a trust or estate or a corporation. Section 7701(a)(3)
defines a corporation to include associations, joint-stock
companies, and insurance companies.
The existing regulations for classifying business
organizations as associations (which are taxable as corporations
under section 7701(a)(3)) or as partnerships under section
7701(a)(2) are based on the historical differences under local
law between partnerships and corporations. Treasury and the IRS
believe that those rules have become increasingly formalistic.
This document replaces those rules with a much simpler approach
that generally is elective.
As stated in the preamble to the proposed regulations, in
light of the increased flexibility under an elective regime for
the creation of organizations classified as partnerships,
Treasury and the IRS will continue to monitor carefully the uses
of partnerships in the international context and will take
appropriate action when partnerships are used to achieve results
that are inconsistent with the policies and rules of particular
Code provisions or of U.S. tax treaties.
A. Summary of the Regulations
Section 301.7701-1 provides an overview of the rules
applicable in determining an organization's classification for
federal tax purposes. The first step in the classification
process is to determine whether there is a separate entity for
federal tax purposes. The regulations explain that certain joint
undertakings that are not entities under local law may
nonetheless constitute separate entities for federal tax
purposes; however, not all entities formed under local law are
recognized as separate entities for federal tax purposes.
Whether an organization is treated as an entity for federal tax
purposes is a matter of federal tax law, and does not affect the
rights and obligations of its owners under local law. For
example, if a domestic limited liability company with a single
individual owner is disregarded as an entity separate from its
owner under 301.7701-3, its individual owner is subject to
federal income tax as if the company's business was operated as a
sole proprietorship.
An organization that is recognized as a separate entity for
federal tax purposes is either a trust or a business entity
(unless a provision of the Code expressly provides for special
treatment, such as the Qualified Settlement Fund rules (1.468B)
or the Real Estate Mortgage Investment Conduit (REMIC) rules, see
section 860A(a)). The regulations provide that trusts generally
do not have associates or an objective to carry on business for
profit. The distinctions between trusts and business entities,
although restated, are not changed by these regulations.
Section 301.7701-2 clarifies that business entities that are
classified as corporations for federal tax purposes include
corporations denominated as such under applicable law, as well as
associations, joint-stock companies, insurance companies,
organizations that conduct certain banking activities,
organizations wholly owned by a State, organizations that are
taxable as corporations under a provision of the Code other than
section 7701(a)(3), and certain organizations formed under the
laws of a foreign jurisdiction (including a U.S. possession,
territory, or commonwealth).
The regulations in 301.7701-2 include a special grandfather
rule, under which an entity described in the list of foreign
entities treated as per se corporations will nevertheless be
classified as other than a corporation. The regulations also
list certain situations where a grandfathered entity would lose
its grandfathered status.
Any business entity that is not required to be treated as a
corporation for federal tax purposes (referred to in the
regulation as an eligible entity) may choose its classification
under the rules of 301.7701-3. Those rules provide that an
eligible entity with at least two members can be classified as
either a partnership or an association, and that an eligible
entity with a single member can be classified as an association
or can be disregarded as an entity separate from its owner.
However, if the single owner of a business entity is a bank (as
defined in section 581), then the special rules applicable to
banks will continue to apply to the single owner as if the wholly
owned entity were a separate entity.
In order to provide most eligible entities with the
classification they would choose without requiring them to file
an election, the regulations provide default classification rules
that aim to match taxpayers' expectations (and thus reduce the
number of elections that will be needed). The regulations adopt
a passthrough default for domestic entities, under which a newly
formed eligible entity will be classified as a partnership if it
has at least two members, or will be disregarded as an entity
separate from its owner if it has a single owner. The default
for foreign entities is based on whether the members have limited
liability. Thus a foreign eligible entity will be classified as
an association if all members have limited liability. A foreign
eligible entity will be classified as a partnership if it has two
or more members and at least one member does not have limited
liability; the entity will be disregarded as an entity separate
from its owner if it has a single owner and that owner does not
have limited liability. Finally, the default classification for
an existing entity is the classification that the entity claimed
immediately prior to the effective date of these regulations. An
entity's default classification continues until the entity elects
to change its classification by means of an affirmative election.
An eligible entity may affirmatively elect its
classification on Form 8832, Entity Classification Election. The
regulations require that the election be signed by each member of
the entity or any officer, manager, or member of the entity who
is authorized to make the election and who represents to having
such authorization under penalties of perjury. An election will
not be accepted unless it includes all of the required
information, including the entity's taxpayer identifying number
(TIN).
Taxpayers are reminded that a change in classification, no
matter how achieved, will have certain tax consequences that must
be reported. For example, if an organization classified as an
association elects to be classified as a partnership, the
organization and its owners must recognize gain, if any, under
the rules applicable to liquidations of corporations.
B. Discussion of Comments on the General Approach and Scope of
the Regulations
Several comments requested clarification with regard to the
rules for determining when an owner of an interest in an
organization will be respected as a bona fide owner for federal
tax purposes. Some commentators were concerned, for example,
that certain owners would be required to maintain certain net
worth requirements. Other commentators, relying on Rev. Rul.
93-4, 1993-1 C.B. 225, suggested that if two wholly-owned
subsidiaries of a common parent were the owners of an
organization, those owners would not be respected as bona fide
owners and the organization would be treated as having only one
owner (the common parent). Although the determination of whether
an organization has more than one owner is based on all the facts
and circumstances, the fact that some or all of the owners of an
organization are under common control does not require the common
parent to be treated as the sole owner. Consistent with this
approach, Rev. Rul. 93-4 treated two wholly owned subsidiaries as
associates and then classified the foreign entity based on the
four corporate characteristics under section 7701. While these
four factors will no longer apply with the adoption of the
regulations, determining whether the subsidiaries are associates
continues to be an issue.
The IRS has received a number of comments asking for
clarification of the tax treatment of entities that are wholly
owned by an Indian tribe and incorporated under tribal law.
Treasury and the IRS are currently studying this issue and will,
if necessary, issue separate guidance regarding this issue.
Most commentators agreed that inclusion of the list of
foreign business entities treated as corporations per se was
appropriate. However, several commentators requested
clarification about certain foreign business entities on the per
se list. Other commentators requested clarification whether and
how the list of such corporations might be updated in the future.
The regulations are clarified with respect to entities formed in
the following jurisdictions: Aruba, Canada, People's Republic of
China, Republic of China (Taiwan), India, Indonesia, Netherlands
Antilles, and Sweden. Any further modifications will be
announced in a notice of proposed rulemaking and will be
prospective only.
Commentators also raised the issue of how to determine if a
joint venture or other contractual arrangement that is considered
a separate entity under these regulations is considered a foreign
or domestic entity. This issue is outside the scope of these
regulations and thus is not addressed in the final regulations.
Some commentators raised issues relating to the application
of the grandfather rule for certain existing entities organized
under foreign statutes included on the list of per se
corporations. In particular, commentators requested
clarification regarding existing entities that would be listed on
the per se list. Commentators have asked whether an existing
entity on the per se list which had claimed non-corporate status
could retain that status, and, if so, whether it could
subsequently elect to be treated as a corporation. Commentators
also asked for clarification as to the effect of a deemed
termination under section 708(b)(1)(B) or a division under
section 708(b)(2)(B) on a grandfathered per se entity.
In response to these comments, the grandfather rules clarify
that an entity on the list which was previously disregarded as a
separate entity (i.e., treated as a branch) or was treated as a
partnership may continue to be treated as such when the
regulations become effective. Moreover, entities on the list
which continue to treat themselves as branches or partnerships
after the effective date of the regulations may subsequently
elect to be treated as corporations. However, after such
election they may not subsequently elect to be treated as a
partnership or a branch. Finally, any termination under section
708(b)(1)(B) (except in the case of a sale or exchange of
interests in an entity described in 301.7701-2(d)(2) where the
sale or exchange is to a related person within the meaning of
sections 267(b) and 707(b) and occurs no later than 12 months
after the date the entity is formed) or division under section
708(b)(2)(B) will end the grandfathered status of any entity on
the per se list, and therefore the successor entity (or entities)
will thereafter be permanently treated as a corporation.
Other commentators suggested that the requirement that an
existing entity included on the per se list must have claimed
passthrough treatment for all prior periods is burdensome and
precludes grandfather treatment for entities that restructured in
the past and recognized the resulting tax consequences. In
response to these comments, the regulations are modified to
indicate that an existing entity can continue to be treated as a
non-corporate entity if it was in existence on May 8, 1996, and
was reasonably treated as a non-corporate entity on that date (or
formed thereafter pursuant to a written binding contract in
effect on May 8, 1996, 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, and
which would otherwise meet the grandfather rules if the date the
entity is formed is substituted for May 8, 1996). If the entity
changed its claimed tax status within the sixty months prior to
May 8, 1996, the entity and its members must have recognized the
tax consequences that resulted from that change in tax status.
Moreover, the regulations clarify that the grandfather treatment
applies if no person for whom the entity's classification was
relevant on May 8, 1996, treats the entity as a corporation for
purposes of filing such person's federal income tax returns,
information returns, and withholding documents for the period
including May 8, 1996.
One commentator suggested that it was unclear when the
classification of a foreign entity is "relevant" for federal tax
purposes. This determination is important, as it affects whether
the grandfather rule, the default rule for existing entities, or
the default rule for a newly formed foreign entity applies. In
general, an entity's classification is relevant when its
classification affects the liability of any person for federal
tax or information purposes. The date that the classification of
a foreign entity is relevant is the date an event occurs that
causes an obligation to file a return or statement for which the
classification of the entity must be determined.
C. Discussion of Comments Relating to the Elective Regime
Most of the commentators agreed that the default rules
included in the proposed regulations generally would match
taxpayers' expectations. However, some commentators expressed
concern over the application of the default rule for newly formed
foreign eligible entities which would treat such entities as
associations if no member had unlimited liability. Specifically,
certain commentators noted that under the definition of unlimited
liability in the proposed regulations, certain contractual joint
ventures which, under current law, would generally be classified
as partnerships, would be treated as associations under the
default rule. The members of these contractual joint ventures
are not jointly and severally liable for all debts of the entity;
rather, each member has unlimited liability for a certain
proportion of the debts of the entity. To simplify the default
rules, the regulations are modified to provide that a newly
formed foreign eligible entity will-- (1) be treated as a
partnership if it has at least two members and at least one
member does not have limited liability; (2) be treated as an
association if all members of the entity have limited liability;
and (3) be disregarded as an entity separate from its owner if it
has a single owner that does not have limited liability.
The regulations are modified to provide that a member does
not have limited liability if the member, by virtue of being a
member, has personal liability for all or any portion of the
debts of the entity.
Certain commentators asked for clarification of the default
rule in the case where the relevant statute or law of a
particular country provides for limited or unlimited liability.
Generally, the regulations specify that only the statute or law
is relevant. Where, however, the underlying statute allows the
entity to specify in its organizational documents whether the
members will have limited liability, the organizational documents
may be relevant.
Some commentators requested that taxpayers be allowed to
make classification elections with their first tax returns. The
regulations retain the requirement that elections be made at the
beginning of the taxable year. Treasury and the IRS continue to
believe that it is appropriate to determine an entity's
classification at the time that it begins its operations.
Taxpayers can specify the date on which an election will be
effective, provided that date is not more than 75 days prior to
the date on which the election is filed (irrespective of when the
interest was acquired) and not more than 12 months after the date
the election was filed. If a taxpayer specifies an effective
date more than 75 days prior to the date on which the election is
filed, the election will be effective 75 days prior to the date
on which the election was filed. If a taxpayer specifies an
effective date more than 12 months from the filing date, the
election will be effective 12 months after the date the election
was filed. No election, whenever filed, will be effective before
January 1, 1997.
One commentator expressed concern about the ability to make
protective elections where there is uncertainty, for example,
about an entity's status as a business entity. Such protective
elections are not prohibited under the regulations.
The regulations limit the ability of an entity to make
multiple classification elections by prohibiting more than one
election to change an entity's classification during any sixty
month period. One commentator suggested that the regulations be
amended to waive application of this rule in certain
circumstances, particularly when there has been a substantial
change in ownership of the entity. In response to this comment,
the regulations permit the Commissioner to waive the application
of the sixty month limitation by letter ruling. However, waivers
will not be granted unless there has been more than a fifty
percent ownership change. The sixty month limitation only
applies to a change in classification by election; the limitation
does not apply if the organization's business is actually
transferred to another entity.
Several commentators requested clarification concerning the
classification of a foreign entity when the classification of the
entity becomes relevant for federal tax purposes after a period
during which the classification of the entity was not relevant.
Generally, such an entity will retain its prior classification.
However, if the classification of a foreign eligible entity which
was previously relevant for federal tax purposes ceases to be
relevant for sixty consecutive months, the entity's
classification will be determined initially under the default
classification when the classification of the foreign eligible
entity again becomes relevant.
Some commentators requested clarification regarding the rule
permitting elections to be signed by any authorized officer,
manager, or member of the electing entity. The regulations
retain this rule, as it provides taxpayers with flexibility in
complying with the election requirements. The determination of
whether a person is authorized to make an election is based on
local law. Thus, the election can be made by anyone authorized
to act on behalf of the entity.
Several commentators asked for guidance regarding the
necessary signatures on the classification election. The
regulations are modified to provide that if the election is made
by all of the members, each person who is an owner at the time
the election is made must consent to the election. However, if
an election is to be effective for any period prior to the date
it is filed, each person who was an owner between the date the
election is to be effective and the date the election is filed
(even if by an authorized person), and who is not an owner at the
time the election is filed, must also consent to the election.
Several commentators requested that the classification
election be coordinated with the election under section 856(c)(1)
to be a real estate investment trust (REIT). Because the latter
election is required to be made with the REIT's first tax return,
the regulations are modified to provide that an election by an
eligible entity to be a REIT will be treated as a deemed election
to be classified as an association, effective for the entire
period during which REIT status is claimed.
Some commentators suggested that the regulations should not
require an entity or its direct or indirect owners to attach a
copy of the entity's election to their federal tax returns.
Specifically, some commentators were concerned that the failure
of one owner to attach a copy of the election to the owner's
return would void an otherwise valid election. The regulations
retain the requirement that taxpayers must attach a copy of the
election to their returns, but clarify that failure to do so will
not invalidate an otherwise valid election. Although the failure
to attach a copy will not adversely affect an otherwise valid
election, taxpayers are reminded that each member of the entity
is required to file returns that are consistent with the entity's
election. Failure to attach the election form to a federal tax
or information return as directed in the regulations may give
rise to penalties against the non-filing party. Other applicable
penalties may also apply to parties who file federal tax or
information returns inconsistent with the entity's election.
One commentator asked for guidance on the treatment of
conversions by election from partnership to corporation and from
corporation to partnership. This issue is outside the scope of
these classification rules and thus is not addressed in these
regulations. Treasury and the IRS, however, are actively
considering issuing guidance on the treatment of such
conversions.
D. Effective Dates
The regulations are effective as of January 1, 1997.
The regulations provide a special transition rule for
existing entities. The IRS will not challenge the prior
classification of an existing eligible entity, or an existing
entity described on the per se list, for periods prior to January
1, 1997, if-- (1) the entity had a reasonable basis (within the
meaning of section 6662) for its claimed classification; (2) 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 January 1, 1997; and (3) neither the
entity nor any member had been 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 will be
determined in the examination).
Some commentators were concerned that an entity organized
after May 8, 1996, would be excluded from this transition rule
for existing entities. Because 301.7701-3(f)(2) applies to
entities that were in existence prior to January 1, 1997, no
change is necessary to provide relief for entities organized
after May 8, 1996.
Some commentators were concerned about entities that claimed
to be trusts for the period prior to January 1, 1997, but are
subsequently determined to be business entities. In that case,
the entity's claimed classification for purposes of applying the
provisions of the special transition rule will be the business
entity classification claimed by the entity after it has been
determined to be a business entity.
Effect on other documents
The Service has published a number of revenue rulings and
revenue procedures interpreting the section 7701 regulations.
The Service is currently reviewing these revenue rulings and
revenue procedures to determine which are affected by the
publication of these regulations. See accompanying Notice 97-1.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply to these regulations. It
is hereby certified that these regulations do not have a
significant economic impact on a substantial number of small
entities. This certification is based upon the fact that the
automatic classification rules of 301.7701-2(b) and the default
classification rules of 301.7701-3(b) will operate in such a
manner that only a limited number of entities will need to make
an election under 301.7701-3(c) to determine their
classification. Therefore, a Regulatory Flexibility Analysis
under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking preceding these final
regulations has been submitted to the Chief Counsel for Advocacy
of the Small Business Administration for comment on its impact on
small business.
Drafting Information
The principal authors of these regulations are Armando Gomez
and Mark D. Harris of the Office of Assistant Chief Counsel
(Passthroughs and Special Industries) and William H. Morris and
Ronald M. Gootzeit of the Office of Associate Chief Counsel
(International). However, other personnel from the IRS and
Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes,
Income taxes, Penalties, Reporting and recordkeeping
requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 301, and 602 are amended as
follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.581-1 is revised to read as follows:
1.581-1 Banks.
(a) In order to be a bank as defined in section 581, an
institution must be a corporation for federal tax purposes. See
301.7701-2(b) of this chapter for the definition of a
corporation.
(b) This section is effective as of January 1, 1997.
Par. 3. Section 1.581-2 is amended as follows:
1. Paragraph (a) is removed.
2. Paragraphs (b) and (c) are redesignated as paragraphs
(a) and (b), respectively.
3. Newly designated paragraph (a) is amended by revising
the second and last sentences.
The revisions read as follows:
1.581-2 Mutual savings banks, building and loan associations,
and cooperative banks.
(a) * * * See section 593 for special rules concerning
reserves for bad debts. * * * See also section 594 and 1.594-1
for special rules governing the taxation of a mutual savings bank
conducting a life insurance business.
* * * * *
Par. 4. In 1.761-1, paragraph (a) is revised to read as
follows:
1.761-1 Terms defined.
(a) Partnership. The term partnership means a partnership
as determined under 301.7701-1, 301.7701-2, and 301.7701-3 of
this chapter.
* * * * *
PART 301--PROCEDURE AND ADMINISTRATION
Par. 5. The authority citation for part 301 continues to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 6. Section 301.6109-1 is amended as follows:
1. Paragraph (b)(2)(iii) is amended by removing the
language "and" at the end of the paragraph.
2. Paragraph (b)(2)(iv) is amended by removing the period
at the end of the paragraph, and replacing it with the language
"; and".
3. Paragraph (b)(2)(v) is added.
4. The text of paragraph (d)(2) is redesignated as
paragraph (d)(2)(i).
5. A paragraph heading is added for newly designated
paragraph (d)(2)(i).
6. Paragraph (d)(2)(ii) is added.
The revisions and additions read as follows:
301.6109-1 Identifying numbers.
* * * * *
(b) * * *
(2) * * *
(v) A foreign person that makes an election under 301.7701-
3(c).
* * * * *
(d) * * *
(2) Employer identification number--(i) In general. * * *
(ii) Special rule for entities electing to change their
federal tax classification under 301.7701-3(c). Any entity that
has an employer identification number and then elects under
301.7701-3(c) to change its federal tax classification will
retain that employer identification number.
* * * * *
Par. 7. Sections 301.7701-1, 301.7701-2, and 301.7701-3 are
revised to read as follows:
301.7701-1 Classification of organizations for federal tax
purposes.
(a) Organizations for federal tax purposes--(1) In
general. The Internal Revenue Code prescribes the classification
of various organizations for federal tax purposes. Whether an
organization is an entity separate from its owners for federal
tax purposes is a matter of federal tax law and does not depend
on whether the organization is recognized as an entity under
local law.
(2) Certain joint undertakings give rise to entities for
federal tax purposes. A joint venture or other contractual
arrangement may create a separate entity for federal tax purposes
if the participants carry on a trade, business, financial
operation, or venture and divide the profits therefrom. For
example, a separate entity exists for federal tax purposes if co-
owners of an apartment building lease space and in addition
provide services to the occupants either directly or through an
agent. Nevertheless, a joint undertaking merely to share
expenses does not create a separate entity for federal tax
purposes. For example, if two or more persons jointly construct
a ditch merely to drain surface water from their properties, they
have not created a separate entity for federal tax purposes.
Similarly, mere co-ownership of property that is maintained, kept
in repair, and rented or leased does not constitute a separate
entity for federal tax purposes. For example, if an individual
owner, or tenants in common, of farm property lease it to a
farmer for a cash rental or a share of the crops, they do not
necessarily create a separate entity for federal tax purposes.
(3) Certain local law entities not recognized. An entity
formed under local law is not always recognized as a separate
entity for federal tax purposes. For example, an organization
wholly owned by a State is not recognized as a separate entity
for federal tax purposes if it is an integral part of the State.
Similarly, tribes incorporated under section 17 of the Indian
Reorganization Act of 1934, as amended, 25 U.S.C. 477, or under
section 3 of the Oklahoma Indian Welfare Act, as amended, 25
U.S.C. 503, are not recognized as separate entities for federal
tax purposes.
(4) Single owner organizations. Under 301.7701-2 and
301.7701-3, certain organizations that have a single owner can
choose to be recognized or disregarded as entities separate from
their owners.
(b) Classification of organizations. The classification of
organizations that are recognized as separate entities is
determined under 301.7701-2, 301.7701-3, and 301.7701-4 unless
a provision of the Internal Revenue Code (such as section 860A
addressing Real Estate Mortgage Investment Conduits (REMICs))
provides for special treatment of that organization. For the
classification of organizations as trusts, see 301.7701-4. That
section provides that trusts generally do not have associates or
an objective to carry on business for profit. Sections
301.7701-2 and 301.7701-3 provide rules for classifying
organizations that are not classified as trusts.
(c) Qualified cost sharing arrangements. A qualified cost
sharing arrangement that is described in 1.482-7 of this chapter
and any arrangement that is treated by the Commissioner as a
qualified cost sharing arrangement under 1.482-7 of this chapter
is not recognized as a separate entity for purposes of the
Internal Revenue Code. See 1.482-7 of this chapter for the
proper treatment of qualified cost sharing arrangements.
(d) Domestic and foreign entities. For purposes of this
section and 301.7701-2 and 301.7701-3, an entity is a domestic
entity if it is created or organized in the United States or
under the law of the United States or of any State; an entity is
foreign if it is not domestic. See sections 7701(a)(4) and
(a)(5).
(e) State. For purposes of this section and 301.7701-2,
the term State includes the District of Columbia.
(f) Effective date. The rules of this section are
effective as of January 1, 1997.
301.7701-2 Business entities; definitions.
(a) Business entities. For purposes of this section and
301.7701-3, a business entity is 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 purposes 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;
(7) A business entity that is taxable as a corporation under
a provision of the Internal Revenue Code other than section
7701(a)(3); and
(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:
American Samoa, Corporation
Argentina, Sociedad Anonima
Australia, Public Limited Company
Austria, Aktiengesellschaft
Barbados, Limited Company
Belgium, Societe Anonyme
Belize, Public Limited Company
Bolivia, Sociedad Anonima
Brazil, Sociedade Anonima
Canada, Corporation and Company
Chile, Sociedad Anonima
People's Republic of China, Gufen Youxian Gongsi
Republic of China (Taiwan), Ku-fen Yu-hsien Kung-szu
Colombia, Sociedad Anonima
Costa Rica, Sociedad Anonima
Cyprus, Public Limited Company
Czech Republic, Akciova Spolecnost
Denmark, Aktieselskab
Ecuador, Sociedad Anonima or Compania Anonima
Egypt, Sharikat Al-Mossahamah
El Salvador, Sociedad Anonima
Finland, Osakeyhtio/Aktiebolag
France, Societe Anonyme
Germany, Aktiengesellschaft
Greece, Anonymos Etairia
Guam, Corporation
Guatemala, Sociedad Anonima
Guyana, Public Limited Company
Honduras, Sociedad Anonima
Hong Kong, Public Limited Company
Hungary, Reszvenytarsasag
Iceland, Hlutafelag
India, Public Limited Company
Indonesia, Perseroan Terbuka
Ireland, Public Limited Company
Israel, Public Limited Company
Italy, Societa per Azioni
Jamaica, Public Limited Company
Japan, Kabushiki Kaisha
Kazakstan, Ashyk Aktsionerlik Kogham
Republic of Korea, Chusik Hoesa
Liberia, Corporation
Luxembourg, Societe Anonyme
Malaysia, Berhad
Malta, Partnership Anonyme
Mexico, Sociedad Anonima
Morocco, Societe Anonyme
Netherlands, Naamloze Vennootschap
New Zealand, Limited Company
Nicaragua, Compania Anonima
Nigeria, Public Limited Company
Northern Mariana Islands, Corporation
Norway, Aksjeselskap
Pakistan, Public Limited Company
Panama, Sociedad Anonima
Paraguay, Sociedad Anonima
Peru, Sociedad Anonima
Philippines, Stock Corporation
Poland, Spolka Akcyjna
Portugal, Sociedade Anonima
Puerto Rico, Corporation
Romania, Societe pe Actiuni
Russia, Otkrytoye Aktsionernoy Obshchestvo
Saudi Arabia, Sharikat Al-Mossahamah
Singapore, Public Limited Company
Slovak Republic, Akciova Spolocnost
South Africa, Public Limited Company
Spain, Sociedad Anonima
Surinam, Naamloze Vennootschap
Sweden, Publika Aktiebolag
Switzerland, Aktiengesellschaft
Thailand, Borisat Chamkad (Mahachon)
Trinidad and Tobago, Public Limited Company
Tunisia, Societe Anonyme
Turkey, Anonim Sirket
Ukraine, Aktsionerne Tovaristvo Vidkritogo Tipu
United Kingdom, Public Limited Company
United States Virgin Islands, Corporation
Uruguay, Sociedad Anonima
Venezuela, Sociedad Anonima or Compania Anonima
(ii) Exceptions in certain cases. The following entities
will not be treated as corporations under paragraph (b)(8)(i) of
this section:
(A) With regard to Canada, any corporation or company
formed under any federal or provincial law which provides that
the liability of all of the members of such corporation or
company will be unlimited; and
(B) 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(1A) (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.
(iii) Public companies. With regard to Cyprus, Hong Kong,
Jamaica, and Trinidad and Tobago, the term public limited company
includes any limited company which is not a private limited
company under the laws of those jurisdictions.
(iv) Limited companies. Any reference to a limited company
(whether public or private) in paragraph (b)(8)(i) of this
section includes, as the case may be, companies limited by shares
and companies limited by guarantee.
(v) Multilingual countries. Different linguistic renderings
of the name of 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.
(c) Other business entities. For federal tax purposes--
(1) The term partnership means a business entity that is not
a corporation under paragraph (b) of 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), then the special rules applicable to banks will
continue to apply to the single owner as if the wholly owned
entity were a separate entity.
(d) Special rule for certain foreign business entities--(1)
In general. Except as provided in paragraph (d)(3) of this
section, a foreign business entity described in paragraph
(b)(8)(i) of this section will not be treated as a corporation
under paragraph (b)(8)(i) of 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;
(iii) 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 filing 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 will 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)(1) of this section will 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)(1) or (d)(2)
of this section will 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;
(B) A termination of the partnership under section
708(b)(1)(B) (regarding sale or exchange of 50 percent or more of
the total interest in an entity's capital or profits within a
twelve month period); or
(C) A division of the partnership under section
708(b)(2)(B).
(ii) Special rule for certain entities. For purposes of
paragraph (d)(2) of this section, paragraph (d)(3)(i)(B) of this
section shall not apply if the sale or exchange of 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. The rules of this section are
effective as of January 1, 1997.
301.7701-3 Classification of certain business entities.
(a) In general. A business entity that is not classified
as a corporation under 301.7701-2(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 partnership terminations and divisions under
section 708(b). Paragraph (f) of this section sets forth the
effective date of this section and a special rule relating to
prior periods.
(b) Classification of eligible entities that do not file an
election--(1) 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--
(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 liability. For purposes 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 will
have limited liability, the organizational documents may also be
relevant. For purposes of this section, a member has personal
liability 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 purposes
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 will 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 will be disregarded as an entity separate from its owner
under this paragraph (b)(3)(i). For special rules regarding the
classification of such entities for periods prior to the
effective date of this section, see paragraph (f)(2) of this
section.
(ii) Special rules. For purposes of paragraph (b)(3)(i) of
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
return 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.
(c) Elections--(1) Time and place for filing--(i) In
general. Except as provided in paragraphs (c)(1)(iv) and (v) of
this section, an eligible entity may elect to be classified other
than as provided under paragraph (b) of this section, or to
change its classification, by filing Form 8832, Entity
Classification Election, with the service center designated on
Form 8832. An election will 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) Further notification of elections. An eligible entity
required to file a federal tax or information return for the
taxable year for which an election is made under paragraph
(c)(1)(i) of this section must attach a copy of its Form 8832 to
its federal tax or information return for that year. If the
entity is not required to file a return for that year, a copy of
its Form 8832 must be attached to the federal income tax or
information return of any direct or indirect owner of the entity
for the taxable year of the owner that includes the date on which
the election was effective. An indirect owner of the entity does
not have to attach a copy of the Form 8832 to its return if an
entity in which it has an interest is already filing a copy of
the Form 8832 with its return. If an entity, or one of its
direct or indirect owners, fails to attach a copy of a Form 8832
to its return as directed in this section, an otherwise valid
election under paragraph (c)(1)(i) of this section will not be
invalidated, but the non-filing party may be subject to
penalties, including any applicable penalties if the federal tax
or information returns are inconsistent with the entity's
election under paragraph (c)(1)(i) of this section.
(iii) Effective date of election. An election made under
paragraph (c)(1)(i) of this section will be effective on the date
specified by the entity on Form 8832 or on the date filed 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 filed, it will be effective 75
days prior to the date it was filed. If an election specifies an
effective date more than 12 months from the date on which the
election is filed, it will be effective 12 months after the date
it was filed. If an election specifies an effective date before
January 1, 1997, it will be effective as of January 1, 1997.
(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 fifty 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
filing date or on the effective date of the entity's prior
election.
(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 will 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 will remain in
effect unless an election is made under paragraph (c)(1)(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.
(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 will be effective as of the first day the entity is
treated as a real estate investment trust.
(vi) Examples. The following examples illustrate the rules
of this paragraph (c)(1):
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 purposes
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 of Y 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, if Y files its Form
8832 after September 14, 1998, it will 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.
Example 2. (i) Z is an eligible entity formed under Country
B law and is in existence on the effective date of 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 files an election under this paragraph
(c), it will continue to be classified as an association under
paragraph (b)(3) of this section.
(ii) Z files 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 file 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) of this section must be signed
by--
(A) Each member of the electing entity who is an owner at
the time the election is filed; or
(B) Any officer, manager, or member of the electing entity
who is authorized (under local law or the entity's organizational
documents) to make the election and who represents to having such
authorization under penalties of perjury.
(ii) Retroactive elections. For purposes 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 filed, each person who was an owner
between the date the election is to be effective and the date the
election is filed, and who is not an owner at the time the
election is filed, must also sign the election.
(d) Special rules for foreign eligible entities--(1) 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 type of tax or information return to file, 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 file 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 will require a U.S.
person to file an information return on Form 5471.
(2) Special rule when classification is no longer relevant.
If the classification of a foreign eligible entity which was
previously relevant for federal tax purposes ceases to be
relevant for sixty consecutive months, the entity's
classification will initially be determined under the default
classification when the classification of the foreign eligible
entity again becomes relevant. The date that the classification
of a foreign entity ceases to be relevant is the date an event
occurs that causes the classification to no longer be relevant,
or, if no event occurs in a taxable year that causes the
classification to be relevant, then the date is the first day of
that taxable year.
(e) Coordination with section 708(b). Except as provided
in 301.7701-2(d)(3) (regarding termination of grandfather status
for certain foreign business entities), an entity resulting from
a transaction described in section 708(b)(1)(B) (partnership
termination due to sales or exchanges) or section 708(b)(2)(B)
(partnership division) is a partnership.
(f) Effective date--(1) In general. The rules of this
section are effective as of January 1, 1997.
(2) Prior treatment of existing entities. In the case of a
business entity that is not described in 301.7701-2(b)(1), (3),
(4), (5), (6), or (7), and that was in existence prior to January
1, 1997, the entity's claimed classification(s) will be respected
for all periods prior to January 1, 1997, if--
(i) The entity had a reasonable basis (within the meaning of
section 6662) for its claimed classification;
(ii) 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 January 1, 1997;
and
(iii) 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 will be determined in the examination).
Par. 8. Section 301.7701-4 is amended as follows:
1. The last sentence of paragraphs (b), (c)(1), (c)(2)
Example 1, and (c)(2) Example 3 are revised.
2. Paragraph (f) is added.
The revisions and addition read as follows:
301.7701-4 Trusts.
* * * * *
(b) Business trusts. * * * The fact that any organization
is technically cast in the trust form, by conveying title to
property to trustees for the benefit of persons designated as
beneficiaries, will not change the real character of the
organization if the organization is more properly classified as a
business entity under 301.7701-2.
(c) * * * (1) * * * An investment trust with multiple
classes of ownership interests ordinarily will be classified as a
business entity under 301.7701-2; however, an investment trust
with multiple classes of ownership interests, in which there is
no power under the trust agreement to vary the investment of the
certificate holders, will be classified as a trust if the trust
is formed to facilitate direct investment in the assets of the
trust and the existence of multiple classes of ownership
interests is incidental to that purpose.
(2) * * *
Example 1. * * * As a consequence, the existence of multiple
classes of trust ownership is not incidental to any purpose of
the trust to facilitate direct investment, and, accordingly, the
trust is classified as a business entity under 301.7701-2.
* * * * *
Example 3. * * * Accordingly, the trust is classified as a
business entity under 301.7701-2.
* * * * *
(f) Effective date. The rules of this section generally
apply to taxable years beginning after December 31, 1960.
Paragraph (e)(5) of this section contains rules of applicability
for paragraph (e) of this section. In addition, the last
sentences of paragraphs (b), (c)(1), and (c)(2) Example 1 and
Example 3 of this section are effective as of January 1, 1997.
Par. 9. Section 301.7701-6 is revised to read as follows:
301.7701-6 Definitions; person, fiduciary.
(a) Person. The term person includes an individual, a
corporation, a partnership, a trust or estate, a joint-stock
company, an association, or a syndicate, group, pool, joint
venture, or other unincorporated organization or group. The term
also includes a guardian, committee, trustee, executor,
administrator, trustee in bankruptcy, receiver, assignee for the
benefit of creditors, conservator, or any person acting in a
fiduciary capacity.
(b) Fiduciary--(1) In general. Fiduciary is a term that
applies to persons who occupy positions of peculiar confidence
toward others, such as trustees, executors, and administrators.
A fiduciary is a person who holds in trust an estate to which
another has a beneficial interest, or receives and controls
income of another, as in the case of receivers. A committee or
guardian of the property of an incompetent person is a fiduciary.
(2) Fiduciary distinguished from agent. There may be a
fiduciary relationship between an agent and a principal, but the
word agent does not denote a fiduciary. An agent having entire
charge of property, with authority to effect and execute leases
with tenants entirely on his own responsibility and without
consulting his principal, merely turning over the net profits
from the property periodically to his principal by virtue of
authority conferred upon him by a power of attorney, is not a
fiduciary within the meaning of the Internal Revenue Code. In
cases when no legal trust has been created in the estate
controlled by the agent and attorney, the liability to make a
return rests with the principal.
(c) Effective date. The rules of this section are effective
as of January 1, 1997.
301.7701-7 [Removed]
Par. 10. Section 301.7701-7 is removed. PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 11. The authority citation for part 602 continues to
read as follows:
Authority: 26 U.S.C. 7805.
602.101 [Amended]
Par. 12. In 602.101, paragraph (c) is amended by adding a
new entry in numerical order to the table to read as follows:
602.101 OMB Control numbers.
* * * * *
(c) * * *
_________________________________________________________________
CFR part or section where Current OMB
identified and described control No.
* * * * *
301.7701-3 1545-1486
* * * * *
Commissioner of Internal Revenue
Approved:
Assistant Secretary of the Treasury