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Category: Tax Questions

How Do I Classify A Domestic Limited Liability Company (LLC)?

A domestic limited liability company (LLC) is an entity:

  • Formed under state law by filing articles of organization as an LLC.
  • Where none of the members of an LLC are personally liable for its debts.
  • Must be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity disregarded as separate from its owner), a partnership, or a corporation.  However, if the LLC has employees, for employment tax purposes the LLC will be treated as a corporation.

Generally, if a domestic LLC has:

  • Only one owner, (see Publication 555, on community property states), it will automatically be treated as if it were a sole proprietorship (a disregarded entity), unless an election is made for it to be treated as a corporation.
  • Has two or more owners, it will automatically be treated as a partnership unless an election is made for it to be treated as a corporation.

If the LLC does not make a classification election, a default classification of disregarded entity (single-member LLC) or partnership (multi-member LLC) will apply.  The election referred to is made using the Form 8832 (PDF), Entity Classification Election.  If a taxpayer does not file Form 8832 (PDF), a default classification will apply.  Different classification rules may apply in special situations, including banks, insurance companies, and nonprofit organizations that are LLCs.


Last Updated: 12/18/2017


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