LLCs were created by the state of Wyoming years ago to be an entity that the IRC had no way to classify. That status has continued to today—an LLC is not an entity type for federal income tax purposes, even though it is an entity type for most other purposes under state law. Eventually the IRS decided to deal with the entity type issue by using what we refer to as a “check the box” election.
The check the box regulations, found at IRC §301.7703-3, allow the taxpayer to choose between certain entity types based on the number of equity holders of the LLC. In essence, we pretend, for federal tax purposes, that the LLC is really some other entity.Read More