Dealing With Entity Classification Issues

Abstract

<p>The move by the Department of the Treasury in late 1996,<strong>1 </strong>effective January 1, 1997,<strong>2 </strong>to allow the choice of entity to be governed by a check-the-box system was greeted<strong> </strong>enthusiastically by most tax practitioners, many of whom had labored for years under<strong> </strong>the long-standing procedure that an unincorporated association would not be taxed as a<strong> </strong>corporation unless it had more corporate than non-corporate characteristics.<strong>3 </strong>Under the<strong> </strong>check-the-box system, a taxpayer could treat domestic unincorporated as partnerships<strong> </strong>or as associations (which includes corporations) on an elective basis.<strong>4 </strong>If no election is<strong> </strong>made, the default status is as a partnership (if the entity has two or more members) or as<strong> </strong>a disregarded entity separate from its owner if it has a single owner.<strong>5</strong></p>