Implementing The Tax System Classification Rules

1139 Words Dec 9th, 2015 5 Pages
On December 17, 1996, the Department of the Treasury (Treasury) finalized rules that were intended to simplify the tax entity classification rules. These rules have become known as the “check-the-box” regulations. Simply put, these regulations allow an eligible entity to “check a box” that indicates the desired tax treatment the entity wishes to have. These new regulations signify what was a much needed departure from the previous classification regulations, which were vague, ambiguous, and created many disputes between taxpayers and the Internal Revenue Service (IRS). This simplification of the entity classification rules would make it easier for such entities to gain their desired tax treatment, which allows those entities to focus less attention on trying to satisfy requirements for a desired classification and more time on profit-earning thinking.

Under the new CTB regulations, an eligible business entity may elect to be taxed as either a corporation or as a partnership without specifically qualifying as one or the other under state law. An eligible entity is any organization that is not specifically required to be classified as a corporation (i.e., entities formed under state corporate law, insurance companies). Therefore, any business entity not required to be treated as a corporation for federal tax purposes may choose its own classifications. If an entity does not make an election or a proper election, then that entity will be classified under default…

More about Implementing The Tax System Classification Rules

Open Document