The application of the separate interests test has thus far been attempted only with foreign entities; its acceptance in light of the recent Ninth Circuit decision in the MCA case remains uncertain. In domestic entity classifications, a mechanical analysis continues to be utilized. This Note will introduce the separate interests test, discuss its inconsistencies, and demonstrate how its application may lead to a different result. It will then explore the implications of applying the test retroactively and exclusively to foreign entities. Because the problem addressed by the application of the separate interests test could be more effectively resolved by legislative action, recommendations will be made for possible legislative changes. These changes would prevent United States controlled foreign entities from avoiding United States taxes by adhering to the mechanical approach of I.R.C. 7701. After reviewing the history of I.R.C. 7701 and its regulations, which apply to both foreign and domestic entities, Part I discusses the separate interests test introduced in Revenue Ruling 77-214 and adopted by the district court in MCA v. United States. The Ninth Circuit court, in overruling the district court, leaves the separate interest test as viable law since it distinguishes the MCA facts from those of Revenue Ruling 77-214. Part II criticizes the test and concludes that legislative change will achieve a more effective and just solution to United States tax avoidance by US controlled foreign entities.
Diane Francesca Krausz,
The Separate Interests Test: A New Hurdle in Foreign Entity Classification,
6 Fordham Int'l L.J. 202
Available at: https://ir.lawnet.fordham.edu/ilj/vol6/iss1/8