For IRS purposes, how do I classify a domestic limited liability company (LLC)? Is it a sole proprietorship (disregarded entity), partnership, or a corporation?

For IRS purposes, the classification of a domestic limited liability company (LLC) depends on the number of members and any elections made by the LLC. Here are the possible classifications:

1. Single-Member LLC:
   • Default Classification: By default, a single-member LLC is classified as a disregarded entity. This means it is treated as a sole proprietorship if the owner is an individual, or as a branch or division if the owner is another entity. The LLC's income, deductions, gains, losses, and credits are reported on the owner's income tax return.
   • Elective Classification: A single-member LLC can elect to be classified as a corporation by filing Form 8832, Entity Classification Election. If it qualifies and elects to be an S corporation, it must file Form 2553, Election by a Small Business Corporation.
2. Multi-Member LLC:
   • Default Classification: By default, a multi-member LLC is classified as a partnership. It must file Form 1065, U.S. Return of Partnership Income, and is subject to the same filing and reporting requirements as partnerships.
   • Elective Classification: A multi-member LLC can elect to be classified as a corporation by filing Form 8832. If it qualifies and elects to be an S corporation, it must file Form 2553.
3. Special Situations:
   • Banks, Insurance Companies, and Nonprofits: Different classification rules may apply to LLCs that are banks, insurance companies, or nonprofit organizations.
   • Employment and Excise Taxes: Even if an LLC is disregarded for income tax purposes, it is treated as a separate entity for employment and certain excise taxes.

In summary, a domestic LLC can be classified as a sole proprietorship (disregarded entity), partnership, or corporation depending on the number of members and any elections made. The default classification for a single-member LLC is a disregarded entity, and for a multi-member LLC, it is a partnership. Both single-member and multi-member LLCs can elect to be classified as a corporation.

Sources:
Publication 1635 (2/2014)
§ 301.7701-2. Business entities; definitions.
PLR 200820007
§ 301.7701-3. Classification of certain business entities.
Publication 3402 (3/2020)
Publication 541 (3/2021)