Now You See it, Now You Don’t: The Comings and Goings of Disregarded Entities

Martin J. McMahon, Jr.

University of Florida - Levin College of Law

October 10, 2011

The Tax Lawyer, Vol. 65, Winter 2012

While state law recognizes an LLC as a distinct type of entity, an LLC is not a distinct entity for federal tax purposes. An LLC that has two or more owners is treated as either a corporation or a partnership, while an LLC with a single owner will be disregarded for federal income tax purposes unless it elects to be treated as a corporation. In addition to single-member LLCs, the Code and Regulations recognize a second type of disregarded entity – the qualified subchapter S subsidiary (commonly called a QSub). The first part of this Article examines the tax consequences of (1) the formation and dissolution of single member LLCs, (2) check-the-box elections and revocations for a single member LLC, (3) the addition of a second member to an LLC, which converts a disregarded entity into a partnership, (4) the reduction of the number of members of an LLC from two or more to one, which converts the LLC from a partnership into a disregarded entity, (5) the election by a LLC to be taxed as a corporation – including “check and sell” and “check and merge” transactions – and the revocation of an election by an LLC to be taxed as a corporation, (6) the merger of a single member LLC into another LLC or a partnership, and (7) the merger of an LLC into a corporation. The second part of the Article examines the treatment of QSub elections, revocations, and terminations, in various contexts, including merger and acquisition transactions.

Number of Pages in PDF File: 50

Open PDF in Browser Download This Paper

Date posted: October 10, 2011 ; Last revised: September 21, 2015

Suggested Citation

McMahon, Jr., Martin J., Now You See it, Now You Don’t: The Comings and Goings of Disregarded Entities (October 10, 2011). The Tax Lawyer, Vol. 65, Winter 2012. Available at SSRN: http://ssrn.com/abstract=1941913

Contact Information

Martin James McMahon, Jr. (Contact Author)
University of Florida - Levin College of Law ( email )
P.O. Box 117625
Gainesville, FL 32611-7625
United States
352-273-0931 (Phone)
352-392-7647 (Fax)

Feedback to SSRN

Paper statistics
Abstract Views: 1,685
Downloads: 546
Download Rank: 36,343

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 0.188 seconds