2009-11-24
The IRS recently stated in an internal memorandum that Liechtenstein Anstalts, in most cases, are properly classified as business entities for U.S. tax purposes under Treas. Reg. § 301.7701-2(a). The memorandum stated that Liechtenstein Anstalts generally are not treated as trusts under Treas. Reg. § 301.7701-4(a) because in most situations their primary purpose is to actively carry on business activities.
In the same memorandum, the IRS stated that Liechtenstein Stiftungs will generally be classified as trusts, unless under the facts and circumstances, the entity was created primarily for commercial purposes.
The proper U.S. tax classification of foreign entities is critical for proper tax planning. Different substantive tax rules and different U.S. tax reporting requirements apply to business entities versus trusts.
As indicated in the IRS memorandum, the business entity classification for Anstalts is "in most cases," and the trust classification for Stiftungs is "generally." The specific facts and circumstances of each case must be analyzed to determine the proper U.S. tax classification of foreign entities.