Tax Corner

Fortnightly Magazine - February 1 1995
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Developers of independent power projects in foreign countries often try to set up the local-owner company to qualify as a partnership for U.S. tax purposes, even if the company is a corporation in the eyes of its government. This strategy enables the developer to defer U.S. taxes on his earnings from the project for as long as he is willing to keep the earnings abroad.

Under new IRS guidelines (Revenue Procedure 95-10) issued January 17, 1995, a foreign company qualifying as a partnership must have at least two shareholders. In Addition: It must lack two of the following four" corporate characteristics":Continuity of Life

Recharge the Economy with Renewable Energy Tax Credits

A foreign company lacks continuity of life if local law or the operating agreement provides for automatic dissolution after the "death, insanity, bankruptcy, retirement, resignation, or expulsion" of any shareholder involved in management. This list must apply to all shareholders. If all the events on this list are not selected as triggers for dissolution, those that are must provide a "meaningful possibility" of dissolution.

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