1. A partnership if it has two or more members and at least one member does not have limited liability.

2. An association taxable as a corporation if all members have limited liability.

3. Disregarded as an entity separate from its owner if it has a single owner that does not have limited liability. ++++++++++++++++++++++++++++++

Thus, an sro (which by definition provides limited liability to all its owners) is by default "an association taxable as a corporation" since all its members have limited liability (it is not "disregarded as an entity separate from its owner").

So unless an election is made on Form 8832 to change this entity classification to something else, the s.r.o. will be treated for US purposes as a separate entity, and if owned more than 50% by US shareholders (US persons with at least 10% ownership), then the s.r.o. will qualify as a "CFC". Now, I'm assuming this sro is indeed a CFC...

The US shareholders of a CFC must file IRS Form 5471 (as well as Form 926 and probably also TDF 90-22.1 regarding the foreign bank accounts). Generally, the US owners of the s.r.o. will have no US tax consequences on the business happening inside the s.r.o. until they take money out (e.g., as salary or dividends) or sell the stock. However, the "Subpart F" rules must be considered. If the sro has Subpart F income (such as certain rental income - here the rules are too complicated for this limited space), then the US shareholders can be immediately taxed on certain sro income even though not distributed. The US tax rules that apply to this sro and the complex forms that should be filed with the IRS are good reason for you to seek U.S. tax advice from a specialist in US international taxation.

If Mr. Mohr is saying this sro is a "look through" company in a practical sense because of the possible impact of the Subpart F rules (and not because of the entity's actual classification), then perhaps he should have qualified this by mentioning the active rental business exception of Section 954(c)(2)(A). Moreover, losses cannot possibly pass through, ie., Subpart F only passes through income to the US shareholders, not losses.

Of course, with a variety of possible consequences, you can ELECT to treat the sro as a passthrough, but this must be an affirmative act using Form 8832 and is subject to all sorts of rules and limitations, and traps for the unwary.

Hope this is helpful.

Please feel free to attend my free presentation on US taxes at the Globe, Pstrossova 6, on Thurs, Feb 23 at 7 pm. www.edelmantax.com

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, I inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein."