{{globalize|date=November 2025}} <!-- This article is currently a stub/in-progress and I am working on expanding it. -->Under U.S. tax law, a '''disregarded entity''' is an entity which is ignored for the purposes of taxation. Common examples of disregarded entities include single-member LLCs, qualified subchapter S subsidiaries and grantor trusts.
== Features == According to the IRS, single-member LLCs that do not elect to be taxed as a corporation are disregarded entities. If the owner is an individual, then the LLC's activities will be reflected on the owner's tax return. Single-member LLCs owned by a corporation or partnership have their activities reflected in the corporation's or partnership's tax return.<ref>{{Cite web |title=Single member limited liability companies {{!}} Internal Revenue Service |url=https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies |access-date=2025-11-05 |website=www.irs.gov |language=en}}</ref> In this case, the use of a disregarded entity offers taxpayers the benefits of limited liability without the drawback of double taxation.<ref>{{Cite web |title=Choose a business structure {{!}} U.S. Small Business Administration |url=https://www.sba.gov/business-guide/launch-your-business/choose-business-structure |access-date=2025-11-05 |website=www.sba.gov |language=en}}</ref>
In certain circumstances, corporations wholly owned by an S corporation (qualified subchapter S subsidiaries) are disregarded for tax purposes. Any taxable events within the subsidiary corporation will be reflected on the S corporation's tax return, and transactions between the subsidiary and the parent S corporation are ignored.<ref>{{Cite web |date=2012-08-01 |title=Operating a QSub |url=https://www.thetaxadviser.com/issues/2012/aug/casestudy-aug12/ |access-date=2025-11-09 |website=The Tax Adviser |language=en-US}}</ref>
Grantor trusts are also generally disregarded for tax purposes.<ref>{{Cite web |title=Income Tax Implications of Grantor and Non-Grantor Trusts |url=https://www.claconnect.com/en/resources/articles/income-tax-implications-of-grantor-and-nongrantor-trusts |access-date=2025-11-09 |website=www.claconnect.com |language=en}}</ref>
Disregarded entities have significant advantages for mergers and acquisitions. Because of the "substance over form" judicial doctrine, exchanges of property between the corporate or individual owner of a disregarded entity are not taxable events.<ref>{{Cite web |last=admin |date=2021-04-15 |title=Disregarded Entities {{!}} What Are They {{!}} Pros & Cons in M&A |url=https://www.leoberwick.com/pros-and-cons-of-disregarded-entities-in-ma-and-beyond/ |access-date=2025-11-05 |website=Leo Berwick |language=en-US}}</ref>
== History == In 1954, Congress created the first type of disregarded entity, a grantor trust.<ref>{{Cite journal |last=Birmingham |first=Brad |last2=Bandoblu |first2=James |date=August 2009 |title=Disregarded Entities: To Be Or Not To Be? |url=https://www.hodgsonruss.com/assets/htmldocuments/1_2_1/Articles/BAB_JMB_Business_Entities_07_09.pdf |journal=Business Entities}}</ref>
In 1996, the Treasury Department created new, simplified "check-the-box" rules for LLCs, which meant that single-member LLCs were disregarded for tax purposes (absent any elections).<ref>{{Cite web |date=1997-12-01 |title=The final "check the box" regulations. |url=https://www.journalofaccountancy.com/issues/1997/dec/smbus-dec-1997/ |access-date=2025-11-05 |website=Journal of Accountancy |language=en-US}}</ref> Previously, single-member LLCs were generally taxed as corporations under the ''Kintner'' test.<ref>{{Cite web |title=Understanding LLC law: Its past and its present |url=https://www.wolterskluwer.com/en/expert-insights/understanding-llc-law-its-past-and-its-present |access-date=2025-11-05 |website=www.wolterskluwer.com |language=en}}</ref>
In 2017, the Treasury Department issued new regulations that require disregarded entities owned by a foreign person to file the informational return Form 5472.<ref>{{Cite web |last=Dallas |first=By Jason B. Freeman, CPA, J. D. |date=2017-04-01 |title=Foreign-owned domestic disregarded entities: Why new reporting requirements? |url=https://www.thetaxadviser.com/issues/2017/apr/foreign-owned-domestic-disregarded-entities-new-reporting-requirements/ |access-date=2025-11-05 |website=The Tax Adviser |language=en-US}}</ref>
== See also == * Look-through company
==References== {{Reflist}}
Category:United States tax law Category:Tax terms