The LLC structure is not recognized by federal law and therefore their filing status is determined by the Entity Classification Rules.  Form 8832 is used for this purpose.  Pursuant to the entity classification rules, LLCs with multiple owners that do not elect to be taxed as a corporation are taxed as a partnership.

Classification

The Entity Classification rules classify certain LLC business entities as Corporations:

• A business entity formed under a Federal or State statute or under a statute of a federally recognized Indian tribe if the statute describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic.
• An Association under Regulations section 301.7701-3.
• A business entity formed under a Federal or State statute if the statute describes or refers to the entity as a joint stock association.
• A state chartered business entity conducting banking activities if any of its deposits are insured by the FDIC.
• A business entity wholly owned by a state of political subdivision thereof, or a business entity wholly owned by a foreign government or other entity described in Regulations section 1.892.2-T.
• A business entity taxable as a corporation under a provision of the code other than section 7701.(a)(3).
• Certain foreign entities (see Form 8832 instructions).
• Insurance Company

An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner, a “disregarded entity.” The Form 8832 is also filed to change the LLC’s classification.

Filing

If the LLC is a partnership, it should file a Form 1065, U.S. Return of Partnership Income. Each owner should show their pro-rata share of partnership income (reduced by any tax the partnership paid on the income), credits and deductions on Schedule K-1 (1065), Partner’s Share of Income, Deductions, Credits, etc.

If the LLC is a corporation, it should file a Form 1120, U.S. Corporation Income Tax Return. The 1120 is the corporate income tax return, and there are no flow-through items to a 1040 from a corporate return. However, if the LLC filed as an S Corporation, it should file a Form 1120S, U.S. Income Tax Return for an S Corporation and each owner reports their pro-rata share of corporate income, credits and deductions on Schedule K-1 (Form 1120).

For additional information on the kinds of tax returns to file, how to handle employment taxes and possible pitfalls, refer to Publication 3402 Tax Issues for Limited Liability Companies.,

References/Related Topics

• Limited Liability Company
• Forming a Limited Liability Company
• Single Member Limited Liability Companies
• Possible Repercussions
• Forms for Limited Liability Companies