Mary, there is a recent Private Letter Ruling issued by the service that specifically states that a two member LLC, where the two members are Husband and Wife and are located in a community property state, will be considered a disregarded entity. It does not address the issue of a non-community property state and many of the tax advisors that we work with caution that it will probably not be considered a disregarded entity in a non-community property state. I would be more than happy to provide you with a copy of the PLR if you are interested, just email your fax number to me.
My business partner and I formed a 2 member LLC (member managed LLC) a few days back. Am I correct in assuming that when I apply for my EIN# with the IRS through the SS-4 form, the LLC cannot be treated as a disregarded entity?
Essentially we are focusing on ‘Subject To’ deals as taught by Charlie/Randy France and Bob Meister.
What type of entity should we choose - Partnership?
On the SS-4 form, Line 3a asks for “Executor, Trustee or ‘care of’” and Line 7a asks for “Principal officer, general partner, grantor, owner or trustor”. Can I fill in my partner’s name for Line 3a and my name for Line 7a?
Two member LLC’s are only considered disregarded entities if the two members are H&W and it is a community property state, otherwise you will not be considered a disregarded entity.
Posted by JHyre in Ohio on August 16, 2003 at 12:12:06:
You need to file as a partnership. Your tax classification does not affect you for non-tax liability purposes. An LLC is appropriate for sub2 if your exit strategy is L/O with anticipated low exercise rates by tenants…such properties are best treated as rentals. If you anticipate flipping or high-exercise L/O’s (like Wendy Patton’s system), I’d consider an S-corp or Limited Partnership.