Initial US Tax Classification

When an entity is initially formed, it will obtain an "initial classification."  This initial classification can be determined under the default rules or it can be determined as a result of a check-the-box election.  Check-the-box elections can generally only be retroactive 75 days from the date of filing (certain late elections may also be allowed).  Thus, if no election is made within 75 days of establishing an entity, the default classification will apply.

In the offshore context, this can be problematic where the entity defaults to be treated as a corporation (the typical situation) and the owners would prefer that the entity be treated as a partnership or a disregarded entity, but the owners did not in advance seek the advice of a tax advisor knowledgeable in this area.

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