Proposed check-the-box regulations under Section 7701.

On August 9, 1996, Tax Executives Institute submitted the following comments to the Internal Revenue Service concerning its proposed regulations under section 7701, relating to the simplification of the Internal Revenue Code's entity classification rules. The Institute's comments were prepared under the aegis of its International Tax Committee, whose chair is Joseph S. Tann, Jr. of Ameritech Corporation. The following members of the Institute also participated in the development of the Institute's submission: Lester D. Ezrati of Hewlett-Packard Company, Melody L. Johnson of Mission Energy Co., Richard S. Michaels of Goodyear Tire & Rubber Co., Susan M. Murray of ENRON Oil & Gas Company, and Lisa Norton of Ingersoll-Rand Company

On May 9, 1996, the U.S. Department of the Treasury and the Internal Revenue Service issued proposed regulations under section 7701 of the Internal Revenue Code, relating to the simplification of the entity classification rules. The proposed regulations were published in the Federal Register on May 9, 1996 (61 Fed. Reg. 21989) and in the Internal Revenue Bulletin on June 10, 1996 (1996-24 I.R.B. 20).

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. Our 5,000 members represent more than 2,700 of the leading corporations in the United States and Canada. 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, relating to the simplification of the entity classification scheme.

TEI commends the IRS and Treasury for issuing these proposed "check-the-box" regulations. Although the current regulations may have made some sense when they were issued three decades ago, in today's global economy taxpayers and the government alike expend far too many resources in addressing entity classification issues. The proposed regulations set forth a regime that is clear, certain, and simple -- without sacrificing any legitimate tax policy goals. Thus, we strongly agree that "it is appropriate to replace the increasingly formalistic rules under the current regulations with a much simpler approach that is generally elective." 1996-24 I.R.B. at 21.

Moreover, as the proposed regulations recognize, the need for a clear and predictable classification system is not limited to the domestic area. Thus, the...