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A flow-through entity (FTE) is a corporate legal entity where income "flows through" to investors (unitholders) in the form of regular cash distributions. The FTE is normally the operating arm of a holdings company or trust to which the earnings from operations are transferred as a taxable deduction in the form of a lease, interest, or royalty payment. Depending on the local tax regulations, this structure can avoid dividend tax and double taxation because only unitholders are taxed on the revenue. Types of FTEs are limited partnerships, S Corporations, income trusts and limited liablity companies (limited liability company).
In the United States, the owners of a FTE annually file the form known as K-1 (or Schedule K-1) to the IRS for the purpose of reporting their share of income in the flow-through entity.
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