McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 20

Eagle Inc., a U.S. corporation, intends to create a limitada in Brazil in 2011 to manufacture pitching machines. The company expects the operation to generate losses of US$2,500,000 during its first three years of operations. Eagle would like the losses to flow through to its U.S. tax return and offset its U.S. profits.
a. Can Eagle "check the box" and treat the limitada as a disregarded entity (branch) for U.S. tax purposes Consult the Instructions to Form 8832, which can be found on the "Forms and Instructions" site on the IRS Web site, www.irs.gov.
b. Assume management's projections were accurate and Eagle deducted $75,000 of branch losses on its U.S. tax return from 2011-2013. At 01/01/14, the fair market value of the limitada's net assets exceeded Eagle's tax basis in the assets by US$5 million. What are the U.S. tax consequences of checking the box on Form 8832 and converting the limitada to a corporation for U.S. tax purposes