The Tax Lifecycle of a Single-Member LLC

47 Pages Posted: 22 Dec 2017 Last revised: 7 Jan 2018

Philip Manns

Liberty University - School of Law

Timothy M. Todd

Liberty University School of Law

Date Written: 2017

Abstract

The single-member LLC (SMLLC) is ubiquitous. Despite its ubiquity, the Internal Revenue Code (Code) does not squarely address its tax consequences nor even contemplate its existence. This article examines the tax lifecycle of an SMLLC through its formation, operation, and exit event (e.g., sale, gift, or deathtime transfer).

This article identifies and isolates a tax asymmetry that arises from the U.S. Tax Court’s decision in Pierre v. Commissioner. Despite the check-the-box regulations, which disregard the SMLLC, Pierre regards the SMLLC for federal gift tax purposes. This asymmetry has several tax consequences, including a potential prophylactic immunization of transfers to SMLLCs against application of section 2036 — which claws back into the federal gross estate transfers when the transferor retains an interest — in the family partnership context.

Consequently, this article demonstrates that the SMLLC can be used to blunt the negative effects of section 2512 (a gift tax provision), section 1015 (an income tax provision), and section 2036 (an estate tax provision). In effect, due to the Pierre asymmetry, the SMLLC is the ideal initial entity in a gifting strategy.

Keywords: tax, LLC, SMLLC, single-member, business tax, Pierre, gift, transfer tax, gift tax, estate tax income tax, business planning

JEL Classification: K1, K10, K2, K22, K29, K34

Suggested Citation

Manns, F. Philip and Todd, Timothy M., The Tax Lifecycle of a Single-Member LLC (2017). This article first appeared in the Virginia Tax Review. 36 Va. Tax Rev. 323 (2017). Available at SSRN: https://ssrn.com/abstract=3090538

F. Philip Manns

Liberty University - School of Law ( email )

1971 University Boulevard
MSC Box 710129
Lynchburg, VA 24515
United States

Timothy M. Todd (Contact Author)

Liberty University School of Law ( email )

1971 University Boulevard
Lynchburg, VA 24515
United States

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