A C Corp. Or A Pass-Through Entity?

Gary Edelson

WASHINGTON, DC–The Tax Cut and Jobs Act is the biggest change to the US tax code in 30 years. There is still much about it that needs clarification. Even the provisions that are perfectly clear, such as the tax rates, lead to further questions, at least in the commercial real estate community. For instance, many real estate firms are be grappling with the question of whether to structure as a C corp. to take advantage of the new 21% corporate tax rate or to continue on as a pass-through entity.

The lower rate notwithstanding, this can be a surprisingly complex decision to make, says Montgomery McCracken Senior Tax law partner Gary M. Edelson. Here’s one reason why: there is still the accumulated earnings tax and the personal holding company tax and therefore, a C corp. can’t be used to to hold a large portfolio of stock and bonds. “Business entities where they need every nickel they can get their hands on and have no intention of distributing anything to the equity owners for as long as they can, would do well to opt to be a C corp.,” Edelson says.