Simplification of Entity Classification Rules
Federal RegisterMay 13, 1996
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DEPARTMENT OF THE TREASURY
26 CFR Part 301
[PS-43-95]
RIN 1545-AT91
Simplification of Entity Classification Rules
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations that would replace
the existing regulations for classifying certain business organizations
with an elective regime. These proposed regulations simplify the
existing classification rules.
DATES: Written comments and requests to speak (with outlines of oral
comments) at a public hearing scheduled for August 21, 1996, at 10 a.m.
must be submitted by August 12, 1996.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (PS-43-95), room 5228,
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submissions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (PS-43-95), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Armando
Gomez, (202) 622-3050; concerning foreign organizations, Ronald M.
Gootzeit or William H. Morris, (202) 622-3880; concerning submissions
and the hearing, Evangelista Lee (202) 622-7190 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507).
Comments on the collection of information should be sent 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, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224.
Comments on the collection of information should be received by July
12, 1996.
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 collections of information are required by Secs. 301.6109-
1(b)(2)(vi) and 301.7701-3(c). This information is required by the IRS
to ensure the proper classification of business organizations and to
ensure compliance with the proposed regulations. The likely respondents
are businesses and other for-profit organizations, including small
businesses.
Books or records relating to a collection 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.
The burden of the collection of information required by
Sec. 301.6109-1 will be reflected in Forms SS-4 and W-7. The burden of
the collection of information required by Sec. 301.7701-3(c) will be
reflected in such form as is prescribed by the Commissioner for
purposes of making the election described in this regulation.
Introduction
This document proposes to revise Secs. 301.7701-1 through 301.7701-
3 of the Procedure and Administration Regulations (26 CFR part 301) to
clarify which organizations are classified as corporations
automatically under the Internal Revenue Code (Code) and to provide a
simple elective regime for classifying other business organizations.
This document also proposes conforming changes to Secs. 1.581-1, 1.581-
2, and 1.761-1 of the Income Tax Regulations (26 CFR part 1), and to
Secs. 301.6109-1, 301.7701-4, 301.7701-6, and 301.7701-7 of the
Procedure and Administration Regulations (26 CFR part 301).
Background
On April 3, 1995, Notice 95-14, relating to classification of
business organizations under section 7701, was published in the
Internal Revenue Bulletin (1995-1 C.B. 297). 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. After consideration of the comments, the Treasury Department
and the IRS propose to replace the existing classification regulations
with a simplified regime that is elective for certain business
organizations.
Explanation of Provisions
I. Introduction
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. However, many states have revised their statutes to
provide that partnerships and other unincorporated organizations may
possess characteristics that traditionally have been associated with
corporations, thereby narrowing considerably the traditional
distinctions between
[[Page 21990]]
corporations and partnerships under local law. For example, some
partnership statutes now provide that no partner is unconditionally
liable for all of the debts of the partnership. Similarly, almost all
states have enacted statutes allowing the formation of limited
liability companies. These entities provide protection from liability
to all members but may qualify as partnerships for federal tax purposes
under the existing regulations. See, e.g., Rev. Rul. 88-76 (1988-2 C.B.
360).
One consequence of the increased flexibility under local law in
forming a partnership or other unincorporated business organization is
that taxpayers generally can achieve partnership tax classification for
a nonpublicly traded organization that, in all meaningful respects, is
virtually indistinguishable from a corporation. To accomplish this,
however, taxpayers and the IRS must expend considerable resources on
classification issues. For example, since the issuance of Rev. Rul. 88-
76, the IRS has issued seventeen revenue rulings analyzing individual
state limited liability company statutes, and has issued several
revenue procedures and numerous letter rulings relating to
classification of various business organizations. Meanwhile, small
business organizations may lack the resources and expertise to achieve
the tax classification they want under the current classification
regulations.
Reacting to the fact that publicly traded entities could easily
qualify as partnerships, in 1987 Congress enacted section 7704 to
require most publicly traded partnerships to be taxable as
corporations. Thus, even if an organization could be classified as a
partnership under the current regulations, it will nevertheless be
classified as a corporation in most cases if its ownership interests
are publicly traded.
In light of these developments, Treasury and the IRS believe that
it is appropriate to replace the increasingly formalistic rules under
the current regulations with a much simpler approach that generally is
elective. To further simplify this area, the proposed regulations
provide similar rules for organizations that have a single owner.
With respect to foreign organizations, Notice 95-14 (1995-1 C.B.
297) observed that, while the distinctions are similarly formalistic,
the classification process under the current regulations involves even
more complexities and requires greater resources than does the
classification process for domestic organizations. For example, the
classification of a foreign organization involves not only a review of
organizational documents, but also a thorough understanding of the
controlling foreign law. Accordingly, the simplified system provided
under the proposed regulations extends to foreign organizations as
well, with certain modifications explained below.
In light of the increased flexibility under an elective regime for
the creation of organizations classified as partnerships, the Treasury
Department and the IRS will continue to monitor carefully the uses of
partnerships in the international context and will issue appropriate
substantive guidance 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.
To accomplish the changes described above, the proposed regulations
would replace Secs. 301.7701-1, 301.7701-2, and 301.7701-3 with new
regulations. In addition, conforming amendments would be made to
Secs. 1.581-1, 1.581-2, 1.761-1, 301.6109-1, 301.7701-4, 301.7701-6,
and 301.7701-7.
II. General Classification Rules
A. Business Entities
Proposed Sec. 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
(which is a matter of federal tax law). The proposed regulations
explain that certain joint undertakings that are not entities under
local law may nonetheless constitute separate entities for federal tax
purposes; on the other hand, not all entities formed under local law
are recognized as separate entities for federal tax purposes. For
example, individuals who own property as tenants in common may create a
separate entity for federal tax purposes if the individuals actively
carry on a trade, business, financial operation, or venture and divide
the profits therefrom. On the other hand, 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. See Rev. Rul. 94-16 (1994-1 C.B.
19); Rev. Rul. 94-65 (1994-2 C.B. 14). Also, the proposed regulations
retain the rule under the current regulations that a qualified cost
sharing arrangement described in Sec. 1.482-7 is not a partnership for
federal tax purposes.
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 Real
Estate Mortgage Investment Conduit (REMIC) rules, see section 860A(a)).
The proposed regulations provide that trusts generally do not have
associates or an objective to carry on business for profit. While these
proposed regulations restate the distinction between trusts and
business entities, the determination of whether an organization is
classified as a trust for federal tax purposes is intended to remain
the same as under current law.
Proposed Sec. 301.7701-2 specifies those business entities that
automatically are classified as corporations for federal tax purposes.
Any other business entity that is recognized for federal tax purposes
may choose its classification under the rules of proposed
Sec. 301.7701-3. Those rules provide that a business entity with at
least two members can be classified as either a partnership or an
association, and that a business entity with a single member can be
classified as an association or can be disregarded as an entity
separate from its owner.
B. Corporations
The proposed regulations clarify 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 or a U.S.
possession, territory, or commonwealth. Each of these categories is
described briefly below.
The proposed regulations define corporation to include any business
entity recognized for federal tax purposes that is organized under a
Federal or State statute, or under a statute of a federally recognized
Indian tribe, that describes or refers to the entity as incorporated or
as a corporation, body corporate, or body politic. Such entities
include governmentally chartered corporations, as well as business
corporations. See, e.g., 12 U.S.C. 21 et seq. (national banking
associations), 20 U.S.C. 1087-2 (Student Loan Marketing Association),
[[Page 21991]]
and 36 U.S.C. 1101 (private corporations established under federal
law).
The proposed regulations define an association by reference to
Sec. 301.7701-3. As discussed in detail below, that section permits
certain business entities to choose whether to be classified as an
association or as a partnership (or, if the entity has a single owner,
as a non-entity).
The proposed regulations define a joint-stock company as a business
entity organized under a State statute that describes or refers to the
entity as a joint-stock company or joint-stock association. These
entities typically have a fixed capital stock divided into shares
represented by certificates transferable only upon the books of the
company, manage their affairs by a board of directors and executive
officers, and conduct their business in the general form and mode of
procedure of a corporation. See Burk-Waggoner Oil Assoc. v. Hopkins,
269 U.S. 110, 113 (1925).
The proposed regulations define an insurance company as a business
entity that is taxable as an insurance company under subchapter L,
chapter 1 of the Code.
Under the proposed regulations, a state-chartered bank is
classified as a corporation if any of the bank's deposits are insured
under the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1811 et
seq., or a similar federal statute. This rule reflects Congress
requirement that these organizations be incorporated to be eligible for
federal deposit insurance, see 12 U.S.C. 1813(a)(2), and provides
comparable tax treatment to state-chartered banks and national banks
chartered under the National Bank Act, 12 U.S.C. 21 et seq. (which
characterizes national banks as corporations, see 12 U.S.C. 24). It
also is consistent with Congress historical treatment of banks as
corporations, as reflected in section 581 of the Code, which requires a
bank to be incorporated for purposes of subchapter H of chapter 1.
Under this rule, however, an unincorporated organization that conducts
banking activities but that does not have federal deposit insurance,
may, under proposed Sec. 301.7701-3, choose not to be an association
for federal tax purposes; in that case, however, the organization is
not a bank within the meaning of section 581, and thus is not eligible
for treatment under subchapter H.
The proposed regulations also classify as corporations
organizations that are recognized for federal tax purposes if they are
wholly owned by a State, or any political subdivision thereof.
Organizations wholly owned by a State that are not an integral part of
the State must be recognized for federal tax purposes and scrutinized
under section 115 (which excludes from gross income any income derived
from the exercise of any essential governmental function and accruing
to a State or any political subdivision thereof, or the District of
Columbia). Accordingly, the proposed regulations classify any such
organization as a corporation. Nevertheless, under section 115, the
organization's income may not be subject to federal income tax.
The proposed regulations define corporation to include any business
entity that is taxable as a corporation under another provision of the
Code. For example, a business entity that is publicly traded within the
meaning of section 7704 (and not within the exception in section
7704(c)), is taxable as a corporation. Similarly, a business entity
that is a taxable mortgage pool under section 7701(i) is taxable as a
corporation.
Finally, the proposed regulations classify as corporations certain
foreign business entities (including entities organized in U.S.
possessions, territories, and commonwealths) that are listed in the
regulations. Notice 95-14 observed that current law does not
automatically classify any foreign entity as a corporation by reference
to the juridical status or designation of that entity under local law.
That is, current law does not identify the foreign analogue to the
incorporated state law entity that is always classified as a
corporation for federal tax purposes, even though section 7701(a)(3)
makes no distinction between domestic and foreign entities. Rather,
since the issuance of Rev. Rul. 88-8 (1988-1 C.B. 403), all foreign
entities have been classified based on the characteristics set forth in
Secs. 301.7701-2 and 301.7701-3 of the current regulations.
Nevertheless, under this approach, those foreign entities that are
equivalent to state law corporations are virtually always classified as
corporations.
To ensure the corporate classification of these foreign entities,
the proposed regulations include a list of foreign business entities
that always will be classified as corporations. Several commentators
supported inclusion of a list of foreign business entities that either
would be treated as corporations per se or that would continue to be
classified under the current regulations. The Treasury Department and
the IRS believe that classifying the business entities on the list as
corporations in all cases is consistent with the goal of simplifying
the entity classification area. The organizations listed are limited
liability entities, such as the British Public Limited Company, the
French Societe Anonyme, and the German Aktiengesellschaft. The Treasury
Department and the IRS invite comments on the composition of the list.
Under a special grandfather rule, however, an entity described in
this list will nevertheless be classified as a partnership under the
proposed regulations if: (1) The entity was in existence and claimed to
be a partnership on May 8, 1996 and for all prior periods, (2) that
classification was relevant to any person for federal tax purposes at
any time during the period that includes May 8, 1996, (3) the entity
had a reasonable basis (within the meaning of section 6662) for
claiming partnership classification, and (4) neither the entity nor any
member has been notified in writing on or before May 8, 1996 that the
classification of the entity is under examination (in which case the
entity's classification will be determined in the examination).
When these regulations become final, and current Sec. 301.7701-2
(on which Rev. Rul. 88-8 is based) is superseded, Rev. Rul. 88-8 will
be obsolete.
C. Other Business Entities
The proposed regulations define the term partnership to include any
business entity that has at least two members and that is not
classified as a corporation.
Some commentators requested clarification of the effect of these
elective classification rules on an organization's ability to elect to
be excluded from subchapter K under section 761. The proposed
regulations do not change the existing requirements for the election
provided in Sec. 1.761-2. Accordingly, an organization that is
classified as a partnership under the proposed regulations may elect to
be excluded from subchapter K, if it qualifies under Sec. 1.761-2.
Many commentators requested guidance concerning the classification
of an unincorporated business entity with a single owner. Some
commentators suggested that these entities be treated as sole
proprietorships, while others suggested partnership classification.
Because a fundamental characteristic of a partnership is the presence
of associates, an entity with a single owner cannot conduct business as
a partnership. However, the proposed regulations permit a business
entity with a single owner that is not required to be classified as a
corporation to elect to be classified as an association or to have the
organization disregarded as an
[[Page 21992]]
entity separate from its owner (in which case the business activity is
treated for federal tax purposes in the same manner as if it were
conducted as a sole proprietorship, branch, or division of the
organization's owner).
III. Elective Classification of Certain Entities
A. In General
Proposed Sec. 301.7701-3 sets forth rules permitting a business
entity that is not required to be classified as a corporation (referred
to in the regulation as an eligible entity) to elect its classification
for federal tax purposes. An eligible entity that has at least two
members may elect to be classified as an association or a partnership,
and an eligible entity with a single owner may elect to be classified
as an association or to be disregarded as an entity separate from its
owner.
B. Default Classification
The proposed regulations are designed to provide most eligible
entities with the classification they would choose without requiring
them to file an election. Thus, the proposed regulations provide
default classification rules that aim to match expectations. An
eligible entity that wants the default classification need not file an
election.
1. Domestic eligible entities. Notice 95-14 suggested partnership
default for domestic eligible entities. The comments supported this
rule, and the proposed regulations adopt it. Thus, a newly formed
domestic eligible entity will be classified as a partnership if it has
two or more members unless an election is filed to classify the entity
as an association; no affirmative action need be taken by the entity to
ensure partnership classification. Similarly, if that entity has a
single member, it will not be treated as an entity separate from its
owner for federal tax purposes unless an election is filed to classify
the organization as an association.
2. Foreign eligible entities. Notice 95-14 suggested association
default for foreign eligible entities. The Notice indicated that while
domestic eligible entities typically are formed with an intent to
obtain partnership classification, the preferred classification of
foreign eligible entities is less predictable. For example, the Notice
expressed concern that because partnership default could subject some
foreign entities to compliance requirements and excise tax liability
under section 1491, an entity should not be classified as a partnership
inadvertently. On the other hand, as some commentators indicated,
association default might not match the expectations of a foreign
eligible entity.
In response to these comments, the proposed regulations provide a
default rule that should match expectations more closely. The Treasury
Department and IRS believe that if any of an organization's members has
personal liability for the debts of the organization, the expectation
is that the organization will be classified as a partnership.
Accordingly, the proposed regulations provide that if one or more of an
eligible entity's members have unlimited liability, the entity will be
classified as a partnership if it has two or more members, or it will
be disregarded as a separate entity if it has a single owner. Only if
all of the entity's members have limited liability will the entity's
default classification be association.
For purposes of this rule, a member of a foreign entity has limited
liability only if, based solely on the controlling statute or law
pursuant to which the entity is organized, the member's personal
liability for the debts of or claims against the entity is specifically
limited (for example, to the amount of the member's unpaid capital
contribution or to the amount of a statutorily limited guarantee). If
protection from personal liability is optional under the applicable
law, the entity's organizational documents will determine which option
applies. The determination whether there is limited liability for
purposes of the default rule is intended to be simpler and more
straightforward than under current law, to ensure that the default
classification is readily apparent. Thus, the limited liability inquiry
generally will focus solely on controlling statutes as interpreted by
judicial or administrative review. As a result, a member's ability to
satisfy creditors' claims would not be relevant. If taxpayers remain
uncertain whether there is limited liability in a particular case, they
may file an election to secure the desired classification.
3. Existing eligible entities. Commentators suggested that special
rules should be provided for eligible entities formed prior to the
effective date of the regulations. These commentators were concerned
that some existing eligible entities would be required to file
classification elections immediately to prevent their classification
from being changed under a default rule. Under the proposed
regulations, eligible entities existing prior to the effective date of
the regulations that choose to retain their current classification
would not be required to file an election. Rather, those entities would
retain the classification claimed under the existing regulations
(except that, if an eligible entity with a single owner claimed to be a
partnership under the current regulations, the entity would be
disregarded as an entity separate from its owner under this default
rule). A foreign entity is considered such an existing entity only if
its classification immediately prior to the effective date of these
regulations is relevant to any person for federal tax purposes; other
foreign entities formed prior to the effective date of these
regulations would be considered new entities at the time that their
federal tax classification became relevant and, therefore, would be
required to file a classification election or be classified under the
general default rule described above.
Furthermore, under a transition rule discussed below, the IRS
generally will not challenge an existing entity's claimed
classification for periods to which the existing regulations apply if
the entity had a reasonable basis for the claimed classification.
C. Elections
1. In general. An eligible entity that does not want the
classification provided by the applicable default provision, or that
wants to change its classification, may file an election to obtain the
chosen classification. Some commentators suggested that the election be
made with Form SS-4 (Application for Employer Identification Number);
others suggested that the election be made with the filing of the
entity's first tax return.
An eligible entity may elect its classification by filing an
election with the appropriate service center. The proposed regulations
would require that the election specify the name, address, and taxpayer
identifying number of the entity, the chosen classification, whether
the election results in a change in classification, and whether the
entity is a domestic or foreign entity. It is anticipated that the
Commissioner will prescribe a form for this purpose, in which case
elections must be made on such form. The election will be effective on
a date specified on the election if that date is not more than 75 days
prior to the date on which the election is filed, or on the date filed
if no such date is specified on the election. In addition to the
original election, a business entity that makes an election shall file
a copy of its election with its federal tax return for the year in
which the election is effective. If the entity is not required to file
a return, the Commissioner will require direct or indirect owners of
the
[[Page 21993]]
entity to include copies of the election with their federal tax
returns.
Notice 95-14 suggested that all the members of an electing eligible
entity would be required to consent unanimously to a classification
election. Most commentators stated that, although an indication of
unanimity may be appropriate, a requirement that each member sign the
election could cause significant administrative difficulties. In
response to these comments, the proposed regulations require that an
election be signed by: (1) Each member of the entity, or (2) any
officer, manager, or owner who is authorized to make the election and
who represents to having such authorization under penalties of perjury.
An electing eligible entity also would be required to provide its
Employer Identification Number (EIN) on the election form. To reduce
taxpayers' paperwork burdens when an existing entity elects to change
its classification, the proposed regulations provide that if the entity
already has an EIN, it will retain it even though it elects to change
its tax classification. Any organization without an EIN at the time it
files its election, including an organization that had not previously
been treated as a separate entity for federal tax purposes, must apply
for an EIN on Form SS-4 when it files its election. If a new single-
member entity elects to be disregarded as an entity separate from its
owner, then the taxpayer identifying number of its owner must be
displayed on the election. The proposed regulations amend
Sec. 301.6109-1 to reflect these requirements.
2. Special rule for exempt organizations. A special rule is
provided for eligible entities that have been determined to be, or
claim to be, exempt from taxation under section 501(a). A substantial
majority of exempt organizations (including those employee plans that
qualify under section 401(a)) will not be eligible entities, either
because they are properly classified as trusts for federal tax purposes
or because they are not-for-profit corporations. However, for those
exempt organizations that are eligible entities, the business entity
classification that is consistent with the claim for exemption is
association (taxable as a corporation). Accordingly, the proposed
regulations provide that a claim or determination of exempt status by
an eligible entity is treated as an election to be classified as an
association. Such elections will take effect on 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 to change that classification after the date that
either the claim is withdrawn or rejected or the determination is
revoked.
3. Limits on changes in classification by election. Notice 95-14
requested comments on whether the regulations should restrict elections
to change an entity's classification. To varying degrees, commentators
supported such a restriction. Under the proposed regulations, an
eligible entity that makes an election to change its classification
cannot change its classification by election again during the sixty
months succeeding the effective date of the election. However, an
existing entity that elects to change its classification as of the
effective date of the proposed regulations may elect to change again
within the first sixty months following the effective date.
The sixty month limitation only applies to a change in
classification by election. Thus, if a new eligible entity elects out
of its default classification effective from its inception, that
election is not a change in the entity's classification. Furthermore,
the limitation does not apply if the organization's business actually
is transferred to another entity. For example, an organization could
liquidate into its parent, terminate and reform as another entity
(e.g., by merger), or contribute its business to another organization
without restriction.
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.
D. Certain Partnership Terminations
Under section 708(b)(1)(B), a partnership is considered terminated
if within a twelve month period there is a sale or exchange of fifty
percent or more of the total interests in partnership capital and
profits. Under this rule, a termination is treated as a liquidation of
the existing partnership and the formation of a new partnership.
Accordingly, if an existing partnership terminates under section
708(b)(1)(B), the newly created entity will be classified as a
partnership (but could elect to change its classification thereafter).
IV. Effective Date and Transition Rules
The regulations are proposed to apply generally for periods
beginning on or after the date the final regulations are published in
the Federal Register. Sections 301.7701-1 through 301.7701-3 will
continue to apply until these regulations are effective.
In addition, the IRS will not challenge the classification of an
existing eligible entity, or an existing entity described in the list
of foreign entities that are classified as corporations under the
proposed regulations, for periods to which the current regulations
apply if: (1) The entity had a reasonable basis (within the meaning of
section 6662) for its claimed classification, (2) the entity claimed
that same classification in all prior years, and (3) neither the entity
nor any member has been notified in writing on or before May 8, 1996
that the classification of the entity is under examination (in which
case the entity's classification will be determined in the
examination).
Special Analyses
It has been determined that this notice of proposed rulemaking 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) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and, therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) that are submitted timely to the IRS. All
comments will be available for public inspection and copying.
A public hearing has been scheduled for Wednesday, August 21, 1996,
at 10 a.m. in the Auditorium of the Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Because of access
restrictions, visitors will not be admitted beyond the Internal Revenue
Building lobby more than 15 minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit written comments by August 12, 1996 and submit an outline of the
topics to be discussed and the time to be devoted to each topic (signed
original and eight (8) copies) by August 12, 1996.
[[Page 21994]]
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal authors of these regulations are Armando Gomez of the
Office of Assistant Chief Counsel (Passthroughs and Special Industries)
and Ronald M. Gootzeit and William H. Morris 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.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301 are proposed to be 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:
Sec. 1.581-1 Tax on banks.
(a) For an institution to be a bank for purposes of section 581, it
must be a corporation for federal tax purposes. See Sec. 301.7701-2(b)
of this chapter for the definition of corporation.
(b) This section applies to taxable years beginning on or after the
date that final regulations are published in the Federal Register.
Sec. 1.581-2 [Amended]
Par. 3. In Sec. 1.581-2, paragraph (a) is amended by removing the
first sentence.
Par. 4. In Sec. 1.761-1, paragraph (a) is revised to read as
follows:
Sec. 1.761-1 Terms defined.
(a) Partnership. The term partnership means a partnership as
determined under Secs. 301.7701-1, 301.7701-2, and 301.7701-3.
* * * * *
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, as proposed to be amended in project
number INTL-0024-94, published on June 8, 1995, at 60 FR 30214, and
INTL-062-90, INTL-0032-93, INTL-52-86, and INTL-52-94, published on
April 22, 1996, at 61 FR 17666, is amended as follows:
1. Paragraph (b)(2)(v) is amended by removing the language ``.'' at
the end of the paragraph, and replacing it with the language ``; and''.
2. Paragraph (b)(2)(vi) is added.
3. The text of paragraph (d)(2) is redesignated as paragraph
(d)(2)(i).
4. A paragraph heading is added for newly designated paragraph
(d)(2)(i).
5. Paragraph (d)(2)(ii) is added.
The revisions and additions read as follows:
Sec. 301.6109-1 Identifying numbers.
* * * * *
(b) * * *
(2) * * *
(vi) A foreign person that makes an election under Sec. 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 Sec. 301.7701-3(c). Any entity that has an
employer identification number and then elects under Sec. 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:
Sec. 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 Secs. 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 Secs. 301.7701-2, 301.7701-3, and 301.7701-4 (unless a provision
of the Internal Revenue Code provides for special treatment of that
organization). For the classification of organizations as trusts, see
Sec. 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. See Sec. 301.7701-3(e) as
contained in 26 CFR Part 301 as revised as of April 1, 1996.
(d) Domestic and foreign entities. For purposes of this section and
[[Page 21995]]
Sec. Sec. 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 Sec. 301.7701-2, the
term State includes the District of Columbia.
(f) Effective date. The rules of this section apply to periods
beginning on or after the date that final regulations are published in
the Federal Register.
Sec. 301.7701-2 Business entities; definitions.
(a) Business entities. For purposes of this section and
Sec. 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 Sec. 301.7701-3)
that is not properly classified as a trust under Sec. 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 Sec. 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) A business entity that is taxable as an insurance company under
subchapter L, chapter 1 of the Internal Revenue Code;
(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) Except as provided in paragraph (d) of this section, the
following business entities formed in the following jurisdictions:
American Samoa, Corporation
Argentina, Sociedad Anonima
Aruba, Naamloze Vennootschap
Australia, Public Limited Company
Austria, Aktiengesellschaft
Barbados, Limited Company
Belize, Public Limited Company
Belgium, Societe Anonyme or Naamloze Vennootschap
Bolivia, Sociedad Anonima
Brazil, Sociedade Anonima
Canada, Corporation
Chile, Sociedad Anonima
People's Republic of China, Company Limited by Shares
Republic of China (Taiwan), Company Limited by Shares
Colombia, Sociedad Anonima
Costa Rica, Sociedad Anonima
Cyprus, Public Limited Company
Czech Republic, Akciova Spolecnost
Denmark, Aktieselskab
Ecuador, Sociedad Anonima or Compania Anonima
El Salvador, Sociedad Anonima
Egypt, Sharikat Al-Mossahamah
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 Terbatas
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
Netherlands Antilles, 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, Aktiebolag
Switzerland, Aktiengesellschaft or Societe Anonyme
Thailand, Borisat Chamkad (Machachon)
Trinidad & Tobago, Public Limited Company
Turkey, Anonim Sirket
Tunisia, Societe Anonyme
Ukraine, Aktsionerne Tovaristvo Vidkritogo Tipu
United Kingdom, Public Limited Company
United States Virgin Islands, Corporation
Uruguay, Sociedad Anonima
Venezuela, Sociedad Anonima or Compania Anonima
(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; and
(2) 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.
(d) Special rule for certain foreign business entities. A foreign
business entity described in paragraph (b)(8) of this section is
classified as a partnership if--
(1) The entity was in existence and claimed to be a partnership on
May 8, 1996 and for all prior periods;
(2) That classification was relevant to any person for federal tax
purposes at any time during the period that includes May 8, 1996;
(3) The entity had a reasonable basis (within the meaning of
section 6662) for claiming partnership classification; and
(4) Neither the entity nor any member has been notified in writing
on or before May 8, 1996 that the classification of the entity is under
examination (in which case the entity's classification will be
determined in the examination).
(e) Effective date. The rules of this section apply to periods
beginning on or after the date that final regulations are published in
the Federal Register.
[[Page 21996]]
Sec. 301.7701-3 Classification of certain business entities.
(a) In general. A business entity that is not classified as a
corporation under Sec. 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 Sec. 301.7701-2(b)(2)) or a partnership, and
an eligible entity with a single member 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. Paragraph (c) of this
section provides rules for making express elections. Paragraph (d) of
this section provides a special rule for classifying an entity created
pursuant to a termination of a partnership under section 708(b)(1)(B).
Paragraph (e) 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 any member has
unlimited liability;
(B) An association if no member has unlimited liability; or
(C) Disregarded as an entity separate from its owner if it has a
single owner that has unlimited liability.
(ii) Definition of unlimited liability. For purposes of paragraph
(b)(2)(i) of this section, a member of a foreign eligible entity has
unlimited liability if the member has personal liability for the debts
of or claims against the entity, by reason of being a member, based
solely on the statute or law pursuant to which the entity is organized.
A member has personal liability if creditors of the entity may seek
satisfaction of debts of 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 such member for any such liability.
(3) Existing eligible entities. 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
Secs. 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. For special rules regarding the
classification of such entities for periods prior to the effective date
of this section, see paragraph (e)(2) of this section. For purposes of
this paragraph, a foreign eligible entity is treated as being in
existence prior to the effective date of this section only if the
entity's classification is relevant to any person for federal tax
purposes at any time during the period that includes the date
immediately 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)(ii) and (iii) 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 an election with the appropriate service center. Such an
election shall specify the name, address, and taxpayer identifying
number of the entity, the chosen classification, whether the election
results in a change in classification, and whether the entity is a
domestic or foreign entity. The election will be effective on the date
specified on the election if that date is not more than 75 days prior
to the date on which the election is filed, or on the date filed if no
such date is specified on the election. If the Commissioner prescribes
a form for this purpose, the election shall be made on such form. See
Sec. 301.6109-1 for rules on applying for and displaying Employer
Identification Numbers.
(ii) Limitation. If an eligible entity makes an election under this
paragraph (c) 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), it cannot change its classification by election
again during the sixty months succeeding the effective date of the
election.
(iii) Special rule for 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 date 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.
(iv) 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 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, no member of Y has
unlimited 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
paragraph (c) of this section to be classified as a partnership. To
be classified as a partnership as of July 1, 1998, Y must file the
election by September 13, 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 election
after September 13, 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
paragraph (c) of this section 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 paragraph (c) of this
section, it will continue to be classified as an association under
paragraph (b)(3) of this section.
(ii) Z files an election under paragraph (c) of this section 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. An election made under paragraph
(c)(1)(i) of this section must be signed by--
[[Page 21997]]
(i) Each member of the electing entity; or
(ii) Any officer, manager, or member of the electing entity who is
authorized to make the election and who represents to having such
authorization under penalties of perjury.
(3) Further notification of elections. An eligible entity required
to file a federal tax return for the taxable year for which an election
is made under paragraph (c)(1)(i) of this section shall attach a copy
of the form filed in accordance with paragraph (c)(1)(i) of this
section to its federal tax return for that year. If the entity is not
required to file a return for that year, the Commissioner will require
that a copy of such form be attached to the federal income tax 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.
(d) Special rule for certain partnership terminations. When a
partnership terminates by operation of section 708(b)(1)(B) (on the
sale or exchange of fifty percent or more of the total interests in
partnership capital or profits within a twelve month period), the
resulting entity created by such termination is a partnership.
(e) Effective date--(1) In general. The rules of this section apply
to periods beginning on or after the date that final regulations are
published in the Federal Register.
(2) Prior treatment of existing entities. In the case of a business
entity that is not described in Sec. 301.7701-2(b) (1), (3), (4), (5),
(6), or (7), and that is in existence prior to the effective date of
this section, the entity's claimed classification will be respected for
all periods prior to the effective date of this section if--
(i) The entity had a reasonable basis (within the meaning of
section 6662) for its claimed classification;
(ii) The entity claimed that same classification for all prior
periods; and
(iii) Neither the entity nor any member has been notified in
writing on or before May 8, 1996 that the classification of the entity
is 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 additions read as follows:
Sec. 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 Sec. 301.7701-2.
(c) * * * (1) * * * An investment trust with multiple classes of
ownership interests ordinarily will be classified as a business entity
under Sec. 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 Sec. 301.7701-2.
* * * * *
Example 3. * * * Accordingly, the trust is classified as a
business entity under Sec. 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 apply to taxable years
beginning on or after the date that final regulations are published in
the Federal Register.
Par. 9. Section 301.7701-6 is revised to read as follows:
Sec. 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 on the
date that final regulations are published in the Federal Register.
Sec. 301.7701-7 [Removed]
Par. 10. Section 301.7701-7 is removed.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 96-11780 Filed 5-9-96; 8:45 am]
BILLING CODE 4830-01-U
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