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Treasury and IRS Announce U.S. Federal Tax Classification of Certain Japanese Business Entities

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The Department of the Treasury today announced that the Treasury Department and the Internal Revenue Service have issued a revenue ruling that addresses the U.S. federal tax classification of certain Japanese business entities.   

The revenue ruling responds to numerous regarding the effect that newly enacted Japanese laws have on the existing Yugen Kaisha (YK) business entity.   Under the new Japanese laws, all existing YKs will be converted into Tokurei Yugen Kaisha (TYK) business entities, and will be considered a type of Kabushiki Kaisha (KK) business entity.   Generally under the entity classification regulations, which apply for U.S. federal tax purposes, a business entity is eligible to elect its tax classification (partnership, corporation, or entity disregarded as separate from its owner).   However, certain business entities, such as the Japanese KK, are always considered corporations.   Under the regulations, a Japanese YK business entity is an entity that is eligible to elect its U.S. federal tax classification.     

The revenue ruling concludes that even though a YK that becomes a TYK under the new Japanese law will be considered a type of KK business entity under such law, it will, for U.S. federal tax purposes, remain an eligible entity that is eligible to elect its U.S. tax classification.