Comments on changes in entity classification: special rule for certain foreign eligible entities.

April 4, 2000

On April 4, 2000, Tax Executives Institute submitted the following comments on the proposed regulations under section 7701 of the Internal Revenue Code, relating to certain transactions that occur within a specified period of time before or after a change in entity classification. The comments were submitted under the aegis of the Institute's International Tax Committee, whose chair is Michael P. Boyle of Microsoft Corporation.

On November 26, 1999, the Internal Revenue Service issued proposed regulations (REG-110385-99) under section 7701 of the Internal Revenue Code, relating to certain transactions that occur within a specified period of time before or after a change in entity classification. The proposed regulations were published in the November 29, 1999, issue of the Federal Register (68 Fed Reg. 66591) and in the December 13, 1999, issue of the Internal Revenue Bulletin (1999-50 I.R.B. 670). A hearing on the regulations was held on January 31, 2000. Tax Executives Institute is pleased to provide the following comments on the proposed rules. For simplicity's sake, the proposed regulations are referred to as the "proposed regulations"; specific provisions are cited as "Prop. Reg. [sections]." References to page numbers are to the proposed regulations (and preamble) as published in the Internal Revenue Bulletin.

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. TEI has 5,000 individual members who represent more than 2,800 of the leading corporations in the United States, Canada, and Europe. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is administrable and, because it provides certainty, that taxpayers can comply with in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations under section 7701 of the Internal Revenue Code.

The Check-The-Box Regime

On December 18, 1996, the IRS and Treasury Department issued final regulations relating to the classification of business organizations under section 7701 of the Code. The so-called check-the-box regulations replace the...