Classification of entities for tax purposes; just 'check the box.'

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Classification of entities for tax purposes; just 'check the box.'

After many years of debate over the proper classification of entities, the Treasury Department has promulgated new regulations that permit certain entities to elect to be classified as partnerships or associations taxable as corporations for federal income tax purposes.(1) The regulations, known as the "check-the-box regulations," became effective on January 1, 1997.

The prior regulations were based primarily on historical differences under local law between partnerships and corporations.(2) Taxpayers and the Internal Revenue Service expended considerable resources in determining the proper classification of unincorporated business entities adhering to and explaining these differences. The Treasury Department and Service finally concluded that it was appropriate to replace such increasingly formalistic rules with a much simpler approach. The new check-the-box regulations are therefore intended to eliminate waste of resources by both taxpayers and the Service, and to facilitate the formation of business entities by reducing uncertainty over the federal tax classification.

Code [sections] 7701(a)(2) defines a partnership to include a syndicate, group, pool, joint venture, or other unincorporated organization, through which any business, financ...

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