Volume 5 No 2    |    Read Article

By Stanley C. Ruchelman and Rusudan Shervashidze

U.S. tax law allows a domestic corporation to elect pass-thru tax treatment of income by making an S-corporation election. Several conditions must be satisfied before the election can be made, including a prohibition of any foreign ownership. In an almost invisible provision of the T.C.J.A., U.S. tax law has been revised to allow an individual who is neither a citizen nor a U.S. resident to hold an indirect current interest in an S-corporation without causing an automatic termination of pass-thru treatment for the corporation. The key is for the current interest to be held through an Electing Small Business Trust that qualifies as a domestic trust for U.S. tax purposes. This may be a boon for Canadian-resident individuals who face mind and management issues when a U.S. L.L.C. is established to invest in a U.S. opportunity. Rusudan Shervashidze and Stanley C. Ruchelman explain all.    See more →