MENU

Single Member LLCs and Estate and Gift Tax Treatment

This proposed topic is submitted on behalf of the Estate and Gift Tax Committee of the Taxation Section of the State Bar of California.

Summary of Proposed Topic

Under the “check-the-box” regulations, entity classification is simplified.  Under these rules, single member LLCs are, by default, disregarded for income tax purposes.  These rules, however, do not specifically address the classification of these entities for estate and gift tax purposes.

The problem currently faced by taxpayers which is addressed by this paper, is the classification of a single member LLC from an estate and gift tax perspective.  Because many states instituted their own death tax system after the repeal of the state death tax credit, the manner in which an individual holds title can affect which state imposes taxation on assets held in an entity.  If property is held in an LLC with more than one member, the entity is taxable for state death tax purposes in the state of the LLC’s formation and the entity is recognized for income tax purposes.  There is, therefore, no reason for nonrecognition for estate and gift tax purposes.

On the other hand, if property is held in an LLC with only one member, the LLC can be disregarded for income tax purposes.  If that single member LLC is also disregarded for estate and gift tax purposes, there is an argument that the entity may be subject to death tax in the jurisdiction where the assets are held (if the assets consist of real or tangible property) instead of in the jurisdiction where the LLC is formed.  In essence, the underlying assets are taxed, not the LLC itself.

To “maintain” consistency between the death tax treatment of all LLCs (regardless of whether they have a single member or multiple members), this proposal is requesting clarification that a single member LLC that is disregarded for income tax purposes is not similarly disregarded for estate and gift tax purposes.

To read this proposal in its entirety, please click here to download a PDF copy.

RECENT ARTICLES

Comments on Proposed Regulations on Tax Return Preparer Due Diligence Penalty

Members of the Taxation Section of the California Lawyers Association (“CLA”) are pleased to submit these comments on proposed regulations ...

Rethinking independent contractor status – The decision could have broad consequences

The recent California Supreme Court decision in Dynamex raises the question whether California businesses may soon be required to reevaluate ...

UPCOMING EVENTS

June 22nd, 2018 – California Lawyers Association 2018 Annual Income Tax Seminar

Matthew Carlson will be speaking at the CLA's 2018 Annual Income Tax Seminar in San Francisco on June 22nd, 2018. Golden ...
green and yellow boxes

CHOOSE A LEGAL PARTNER THAT'S COMMITTED TO YOUR SUCCESS.

To find out how we can help you through the complexities of today’s legal issues, call (916) 920-5286 or click below.