Foreign Holding Companies & Check-the-Box Elections
The United States lets many foreign entities choose how they are taxed: as a corporation, a partnership or as if they did not exist. The choice changes everything that follows.
We design holding structures for U.S. persons with foreign businesses and investments, make the elections on time and file the forms that go with them.
Classification decides whether the CFC and PFIC rules apply at all.
A foreign company treated as a corporation can be a controlled foreign corporation or a passive foreign investment company, with current income inclusions and heavy reporting.
The same company, elected to be disregarded or treated as a partnership, has its income taxed directly to the owner, often with foreign tax credits that work better and a simpler compliance picture.
The election is filed on Form 8832. Its effective date can be set within limits fixed by regulation, and once made it generally cannot be changed again for 60 months.
The elections in numbers.
From Form 8832 and related IRS instructions.
Some foreign entity types are treated as corporations by regulation and cannot elect. Whether an entity is eligible is the first question. Sources: IRS, About Form 8832; IRS, Form 8832 (current draft); IRS, Instructions for Form 8858.
What we do with foreign holding structures.
Holding structure design
Layers, jurisdictions and classifications chosen for U.S. tax, foreign tax, liability and the exit.
Form 8832 elections
Eligibility, timing, effective dates and the consequences of a deemed liquidation or contribution.
Forms 8858, 8865 and 5471
Annual reporting for disregarded entities, foreign partnerships and foreign corporations in the structure.
Foreign tax credits
Structures that let home-country taxes offset U.S. tax rather than being lost.
Before and after residency
Elections made before a move, or on arrival, to avoid CFC and PFIC treatment.
Late elections and corrections
Relief for missed elections and restructuring of holding companies that were set up without U.S. advice.
How a classification plan runs.
Eligibility, modeling, election, reporting.
Map
Every entity in the chain, its home-country form and its default U.S. classification.
Model
Tax under each available classification, including the deemed transactions an election triggers.
Elect
Form 8832 filed with the chosen effective date and the required consents.
Report
Forms 8858, 8865 or 5471 calendared for the new structure.
Lawyers who plan the structure and defend it.
Structure before the move, the investment or the sale.
Residency timing, entity choice, trusts and elections are decided together, with the home-country result in view. We coordinate with your accountants and counsel abroad so the plan works in both places.
Compliance and controversy in the same hands.
Foreign asset reporting, penalty exposure, streamlined and voluntary disclosures and IRS examinations. The firm also litigates and arbitrates, so a plan is written knowing how it will be tested.
An election is a deemed transaction, and it is sticky.
Changing a corporation into a disregarded entity is a deemed liquidation. The result should be known before it is filed.
- Confirm the entity is eligible to elect
- Model the deemed liquidation or contribution the election causes
- Choose the effective date deliberately, especially around a move
- Calendar the reporting forms the new classification requires
- File Form 8832 without reviewing the home-country effect
- Assume the election is reversible; it generally is not for 60 months
- Forget Form 8858 once an entity is disregarded
- Elect for an entity with built-in gain without planning the tax
From the firm’s writing.
International Tax Attorney on Form 8832 Elections
How and when to change a foreign entity’s classification.
Read the articleU.S. Pre-Immigration Tax Lawyer for AI & Software Founders
Holding companies before the move.
Read the articleLoan to Your Company: Debt or Equity?
Funding a holding company the right way.
Read the articleFrequently asked.
An election on Form 8832 by which an eligible entity chooses to be taxed as a corporation, a partnership or a disregarded entity. Without an election, a foreign entity is classified by default rules based on whether its owners have limited liability.
No. Certain foreign entity types are treated as corporations by regulation and cannot elect. Others can. The list is in the instructions to Form 8832, and eligibility is the first thing we check.
On a date chosen on the form, within a limited window before or after filing set by regulation. Once made, the classification generally cannot be changed again for 60 months. Late-election relief exists in some circumstances.
The owner files Form 8858 each year for a foreign disregarded entity, and reports the entity’s income on their own return. The penalty for not filing Form 8858 is $10,000 per year.
Usually. The options include a current election, a restructuring or, where filings were missed, a streamlined or voluntary disclosure to bring the past into order. The fix depends on the built-in gain and the home-country rules.
Other areas of the practice.
Inbound and outbound services, from pre-immigration planning to offshore compliance. Back to the overview.
A foreign holding company and U.S. tax exposure?
A confidential consultation. We will tell you how the structure is classified today and what an election would change.