Summary Of Corporate Forms A summary of the tax characteristics of different corporate forms.

Domestic International Sales Corporation The DISC was used in conjunction with Foreign Sales Corporations, but has been reborn following 2003 legislation.

Limited Partnership Limited Partnerships are often used for investment-holding purposes, and have 'pass-through' status for domestic partners.

Limited Liability Company

All 50 states and the District of Columbia have authorized the formation of LLCs. US tax law treats an LLC on a 'pass-through' basis - a single member LLC is simply disregarded for tax purposes, while an LLC with two or more members is treated as a partnership unless it opts to be treated as a corporation. In both cases taxation is applied to the members and not to the LLC.

If the members of an LLC are foreign persons, then they will be taxed on all income which is effectively connected with their conduct of a trade or business in the US. However, the receipt of 'passive' income on its own does not normally amount to the conduct of a US business - passive income includes most interest income, gains from investment in any stock market, and gains from investment in commodities.

Foreign owners of a domestic LLC do not pay income tax on the LLC’s foreign source export income except under certain circumstances. If the foreign person’s LLC does not have a US office or an agent in the US, it is unlikely that foreign source income will be taxed as US income. If there is a US office, then by and large the activities of the US office will not be considered to be a material factor in the realization of income, gain, or loss, unless the US office provides a significant contribution to, by being an essential economic element in, the realization of the income, gain, or loss. An administrative office in the US can pay expenses, deposit income and perform accounting activities. These activities will not cause export income to be taxed by the US taxing authorities.

An office is not considered to have materially participated in a sale merely because one or more of the following activities takes place: (a) the sale is made subject to the final approval of such office, (b) the property sold is held in, and distributed from such office, (c) samples of the property sold are displayed (but not otherwise promoted or sold) in such office, (d) such office is used for purposes of having title to the property pass outside the United States, or (e) such office merely performs clerical functions incident to the sale.  

Summary Of Corporate Forms A summary of the tax characteristics of different corporate forms.

Domestic International Sales Corporation The DISC was used in conjunction with Foreign Sales Corporations, but has been reborn following 2003 legislation.

Limited Partnership Limited Partnerships are often used for investment-holding purposes, and have 'pass-through' status for domestic partners.