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Entity Types

Issuer

Definition: An Issuer is an entity (not a human or natural person), such as a corporation, trust, or government, that develops, registers, and sells securities.  They have a legal responsibility for their obligations. In general, issuers of publicly offered OID debt instruments, must report information about the instruments on Form 8281.  This must happen within 30 days of the issue date.

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Hybrid Entities

Definition: A hybrid entity is an entity that is considered to be a pass-through entity for U.S. tax purposes and a taxable corporate entity (association) in the tax jurisdiction where it was organized. In other words, under the U.S. tax rules, the entity is not able to receive income directly, (fiscally transparent) because the income flows to the partners or investors of the entity. The partners or investors will be taxed on the income of the fiscally transparent entity, instead of the entity itself. Under the local laws

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Green Card Test

Definition: The green card test considers a person to be resident for U.S. federal tax purposes if he or she is a Lawful Permanent Resident of the United States at any time during the calendar year. A person is considered to be a Lawful Permanent Resident of the United States if he or she has been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant.  A person generally has this status if the U.S. Citizenship and Immigration

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Non-US Person

Definition: A non-US (foreign) person is not a US citizen or US resident alien.  Generally, a non-US person includes the following: Nonresident alien individual Non-US (foreign) Corporation Partnership Trust Estate Government International Organization Central Bank of Issue Bank for International Settlements   See More

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Merchant Acquiring Entity

Definition: A merchant acquiring entity is the bank or other organization which has the contractual obligation to make payment to participating payees in settlement of payment card transactions Citations: 6050W. Returns relating to payments made in settlement of payment card and third-party network transactions

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Reverse Hybrid Entities

Definition: One of the results of the elective nature of the CTB regulations is that a foreign entity may be treated differently for U.S. tax purposes than the entity is treated under foreign law. An entity may be classified as a corporation entity for in the U.S. tax purposes but as a flow-through in a foreign tax purposes (commonly referred to as a “reverse hybrid entity”) See Definition

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Related Persons

Definition: Related persons is any of the following: Members of a family, including only brothers, sisters, half brothers, half sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.). Any person who is a party to any arrangement undertaken for the purpose of avoiding the contingent interest rules. Certain corporations, partnerships, and other entities.   Citation: IRC § 871(h)(4)(B). Tax on nonresident alien individuals

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Regulated Investment Companies

Definition: A Regulated Investment Company is any domestic corporation that: Is registered throughout the tax year as a management company or unit investment trust under the Investment Company Act of 1940 or has an election in effect under the Investment Company Act of 1940 to be treated as a business development company, or Is a common trust fund or similar fund excluded from the definition of “investment company” and is not included in the definition of “common trust fund” under the Investment Company Act of 1940.

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Regarded Entity

Definition: An entity recognized for US tax purposes. Example:  An LLC owned by one person can elect (for US tax purposes) to disregard the LLC and recognize the individual owner as the regarded owner. For all other purposes, the LLC would be regarded as an entity. Alternatively, the LLC can elect to be regarded as an entity itself (a corporation) and recognized for US tax purposes as a corporation.

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Financial Asset Securitization Investment Trusts

Definition A financial asset securitization investment trust (FASIT) is an entity that securitizes debt obligations such as credit card receivables, home equity loans, and automobile loans. A regular interest in a FASIT is treated as a debt instrument. The rules described under Collateralized Debt Obligations (CDOs), earlier, apply to a regular interest in a FASIT, except that a holder of a regular interest in a FASIT must use an accrual method of accounting to report OID and interest income See Page 26

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Real Estate Mortgage Investment Conduits

Definition: Real Estate Mortgage Investment Conduits (REMICs) are prodcuts that create a type of structuring of mortgage pass-through securities that redistribute cash flows due to market demands. Reporting: Holders of REMICs that are US persons must report interest income on an accrual basis as though the interest were issued as an original issue discount (LINK TO OID) instrument. Withholding: Holders of REMICs that are non-US persons likely will not see NRA withholding until a payment is made.   Geneally, REMICs are treated as debt obligations that generate interest that is

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Real Estate Investment Trusts

Definition: To qualify as a REIT (Real Estate Investment Trusts), an organization: Must be a corporation, trust, or association. Must be managed by one or more trustees or directors. Must have beneficial ownership (a) evidenced by transferable shares, or by transferable certificates of beneficial interest; and (b) held by 100 or more persons. (The REIT does not have to meet this requirement until its 2nd tax year.) Would otherwise be taxed as a domestic corporation. Must be neither a financial institution (referred to in section 582(c)(2)),

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Publicly Traded Partnerships

Definitions: A Publicly Traded Partnership is any partnership that is traded consistently on an established securities market.  This definition does not include a publicly traded partnership treated as a corporation. A Publicly Traded Partnership that has effectively connected income, gain, or loss must pay withholding tax on any distributions of that income made to its non-US partners and report on Form 1042 and 1042-S.  The rate of withholding is currently 35 percent, but is subject to future tax law changes. See Also: Publicly Traded Partnerships

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Disregarded Entity

Definition: A disregarded entity is an entity that is owned by only one person, and for which the single member has either made a valid election to treat the entity as disregarded for US tax purposes, or which is disregarded under the US default classification rules. Depending on elections made by the LLC and the number of members, the IRS will treat an LLC either as a corporation, partnership, or as part of the owner’s tax return (a “disregarded entity”). Specifically, a domestic LLC with at

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Per Se Non-U.S. Corporation

Definition: Per se corporations are non-U.S. entities deemed to be corporations for U.S. federal tax purposes if it is a certain type of non-U.S. entity that is identified on a comprehensive list in the Code of Federal Regulations.  These entities receive an automatic classification of corporation at the time of formation and are not eligible to elect a different classification for U.S. tax purposes.  The list of non-U.S. entity designations that are automatically classified as corporation can be found in Treas. Reg. s. 301.7701-2(b)(8).

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Payment Settlement Entity

Definition: A Payment Settlement Entity (PSE) for purposes of payment card transactions is a U.S. or non-U.S. entity that is a merchant acquiring entity.  The merchant acquiring entity must be a bank or other organization that has obligated itself under contract to pay participating payees in settlement of payment card transactions. A PSE for purposes of third-party network transaction is a third-party settlement organization (TPSO).  This means that it is the central organization that has the contractual obligation to make payments to participating payees of third-party network transactions. Note.

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Corporations

A Corporation is an entity formed under a government body (state, federal, local foreign jursidiction law) by the filing of Articles of Incoporation with that governmental body. Corporations are subject to income tax at the entity level and then subsequently at the owner (shareholder) level when income is actually distributed as a dividend to the owner. A Corporation is any of the following: A business entity organized under a federal or state statute as incorporated or as a corporation. An association. A business entity organized under a state

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Pass-Through Entity

Definition: A pass-through entity is a fiscally transparent entity.  This means that the entity itself does not receive income.  Instead, the income passes through the entity and is taxed to another person.  Pass-through entities include sole proprietorships, limited liability companies, partnerships, and S-corporations.  None of these entities pay business taxes (e.g., employment taxes) at the entity level, because all of the income passes through to the owner of the entity and is taxed as the owner’s income.

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Partnerships

Definition: A partnership is the name of an entity that is owned by two or more persons (or other entities) that join together to carry on a trade or business.  Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the partnership business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax.  Instead, it “passes through” any profits or losses to

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Participating Payee

Definition: A participating payee for purposes of a payment card transaction, is any person, including any governmental unit or agency of a government unit who accepts a payment card as payment.  This includes any account number or other indicia associated with the payment card.  A participating payee for purposes of a third-party network transaction is any person who accepts payment from a third-party settlement organization in settlement for that transaction. A participating payee does not include a person with an address outside of the United States. Citations: 6050W. Returns relating

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Check the Box and Entity Formation

Definition At the time of formation, a business entity must choose a tax classification, which is how it would like to be treated for U.S. income tax purposes.   These types include corporation, partnership, and disregarded entity.  Certain entities receive a default classification from the IRS.   These entities may choose to make a check-the-box election, which  allows them to elect out of their default classification by filing a Form 8832 (Entity Classificaction Election), with the IRS. Example, an eligible entity may elect to be classified

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Sponsoring Entities

Definition: An FFI is a sponsored controlled foreign corporation, if the FFI meets the following requirements (i) The FFI is a controlled foreign corporation that is not a QI, WP, or WT; (ii) The FFI is wholly owned, directly or indirectly, by a U.S. financial institution that agrees with the FFI to act as a sponsoring entity for the FFI; and (iii) The FFI shares a common electronic account system with the sponsoring entity that enables the sponsoring entity to identify all account holders and payees

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Withholding Agent

Definition Where the income is subject to withholding tax a withholding agent is the party who is responsible for reporting and paying the tax to the IRS and must also furnish a statement to the recipient of the income. A withholding agent is a U.S. or foreign person that has the control, receipt, custody, disposal, or payment of the income to a foreign person. Generally, withholding agents are required to withhold at the statutory rate of 30% and must deposit any tax withheld and file Form

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10 Percent Shareholder

Definition: A 10 percent shareholder meets one of the following requirements: In the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote, In the case of an obligation issued by a partnership, any person who owns 10 percent or more of the capital or profits interest in such partnership. Citation: IRC § 871(h)(3). Tax on nonresident alien individuals

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