ALI-ABA Course of Study International Trust and Estate Planning ...

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The taxpayer should also consider electing to have a corporation deemed
liquidated by "checking the box" and filing Form 8858.
4. Avoiding Anti-Deferral Regimes
A nonresident alien can take steps to minimize (or completely avoid) the postimmigration
impact of the anti-deferral regimes described above. 176
If the application of an anti-deferral regime depends on a specified level of
ownership by U.S. persons (i.e., CFC), the regime can be avoided through transfers of stock to
other nonresident aliens prior to becoming a U.S. resident. Such transfers may generally be
accomplished, without U.S. tax consequences, either by sale or by gift. Care should be taken in
choosing the recipient of stock, however, because the immigrating nonresident alien must be sure
that any applicable constructive ownership rules will not cause the stock to be considered as
continuing to be owned by him despite the transfer.
If the application of an anti-deferral regime depends on a foreign corporation's
ownership of assets that produce, or the actual receipt of, "bad" (generally, passive) income (e.g.,
CFC, PHC, and PFIC), the regime can be avoided by restructuring the activities of the foreign
corporation so as to reduce the level of "bad" income or assets below the threshold required to
trigger the regime. Such a restructuring might be accomplished through a tax-free reorganization,
liquidation, or distribution of "bad" activities or assets during the pre-immigration period.
If the anti-deferral regime depends on the corporation’s being classified as a
foreign person (e.g., CFC and PFIC), domestication of the foreign corporation, coupled with an
"S" election 177 to treat the corporation as a flow-through entity, may be considered as a
possibility, but the long-term consequences should be considered carefully. Alternatively, an
LLC may be used.
The nonresident alien could also choose to forego the prospect of tax deferral by
electing under the "check-the-box" regime to treat the corporation as a flow-through entity (i.e.,
as a partnership if it has more than one member, or as a disregarded entity if the nonresident
alien is the sole shareholder), which would result in a deemed liquidation of the foreign
corporation. 178 Conveniently, the deemed liquidation would permit the corporation's assets to
receive a tax-free step-up.
5. Transfers to Foreign Entities
Any transfers that a nonresident alien is planning to make to a foreign
corporation, foreign partnership, or foreign trust or estate should be accomplished during the preimmigration
period. Once the nonresident alien becomes a U.S. resident, Sections 367, 684, and
721(c) may potentially apply to the transfer and trigger the recognition of gain on the transfer. 179
176
177
178
179
See supra Section X.
See §1361 et seq. See also Priv. Ltr. Rul. 9512001 (Sept. 30, 1994) (concluding that a
domesticated foreign corporation may make an S election).
See generally Treas. Reg. §301.7701-3. Assuming, of course, that the foreign
corporation is not a type of entity that is treated as a per se corporation under the checkthe-box
regulations. See Treas. Reg. §301.7701-2(b)(8).
See supra Section VIII.E.
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