An eligible entity with two or more members may elect to be classified as either a corporation or a partnership.

An eligible entity with only one member may elect to be classified as either a corporation or a disregarded entity. 2009-41 provides that if certain requirements are met, an eligible entity may file a late classification election within 3 years and 75 days of the requested effective date of the election.

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A RIC that satisfies certain additional distribution requirements will generally be taxed as a pass-through entity that acts as a partial “conduit” of income to its shareholders. from the University of California, Berkeley, and his J.

Such conduit treatment is achieved by allowing a qualifying RIC to deduct the amount of dividends paid to its shareholders in computing the RIC's taxable income and gains, with the result that the RIC's distributed net income and gains can be passed through to its shareholders free of tax at the RIC level.

Where a foreign corporation is classified as a “controlled foreign corporation” (“CFC”) for an uninterrupted period of 30 days or more during any taxable year, however, its U. shareholders must include in income their pro rata share of the Subpart F income of the CFC for that taxable year, whether or not such earnings are distributed. In addition to the inability to defer taxation on its share of a CFC’s subpart F income, one of the pitfalls of a U. shareholder owning stock in a CFC is that subpart F income is treated as ordinary income to the U. shareholder (currently taxed at a maximum federal income tax rate of 39.6 percent), regardless of whether the CFC is resident in a jurisdiction that has an income tax treaty with the United States. Among other things, subpart F income generally includes passive investment income (e.g., interest, dividends, rents and royalties) and net gain from the sale of property that gives rise to passive investment income.

A CFC is a foreign corporation, more than 50 percent of which is owned (by vote or value), directly or indirectly, by “U. Gain on the sale of stock in a foreign corporation, for example, falls within this category.

The Portfolio also discusses the applicability of other Code provisions to RICs.

To view this Portfolio, take a free trial to Bloomberg BNA Tax & Accounting This Portfolio is available with a subscription to Bloomberg BNA Tax & Accounting, a comprehensive research solution including over 500 Tax Management Portfolios, practice tools, primary sources and timely news. Types of Entities that Can Qualify for RIC Status A.

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Converting Subpart F Income into Qualified Dividends U. shareholders of foreign corporations are generally not subject to tax on the earnings of such corporations until the earnings are repatriated to the shareholders in the form of a dividend.