domestic eligible entity will be classified by default as: A partnership if it has two or more members. Disregarded as an entity separate from its owner if it has a single owner. A change in the number of members of an eligible entity classified as an association (defined below) does not affect the entity's classification. However, an eligible entity classified as a partnership will become a disregarded entity when the entity's membership is reduced to one member and a disregarded entity will be classified as a partnership when the entity has more than one member. Unless an election is made on Form 8832, a foreign eligible entity will be classified by default as: A partnership if it has two or more members and at least one member does not have limited liability. An association taxable as a corporation if all members have limited liability. Disregarded as an entity separate from its owner if it has a single owner that does not have limited liability. The effect of these rules is that a U.S. limited liability company (LLC) or limited liability partnership (LLP) is treated by default as a partnership (or disregarded entity if it has only one owner), whereas a foreign LLP is treated by default as a corporation (if, as is generally the case, all its members have limited liability). If an entity has been operating under one classification for some time, but then elects to change its classification, there may be tax consequences. The initial regulations were unclear on this point, so the IRS issued Revenue Rulings 99-5 and 99–6 in 1999 to address questions surrounding the conversion of an LLC to a partnership and vice versa. Use in international tax planning The "check-the-box" regulations paved the way for various new tax avoidance and tax deferral strategies. Specifically, they expanded the opportunity for "hybrid branch" or "hybrid entity" strategies, which take advantage of differences in the classification of an entity as a corporation or not in multiple jurisdictions, in order to engage in cross-border tax arbitrage. The possibility that the check-the-box rules would greatly expand the potential for such strategies had been pointed out prior to implementation, and at one point some commentators suggested disallowing foreign entities from electing their classification at all; however, in the end, the IRS, while acknowledging such concerns, issued regulations which gave foreign and domestic entities largely similar powers to elect their own