Single Member LLC Update
In our previous post, we indicated that the IRS had recently released a ruling indicating that a single member LLC is not an individual for purposes of getting out of the late filing penalty for small partnerships. Our language could have been a little better. The ruling is actually from 2004 (Revenue Ruling 2004-88) and the Ninth Circuit of the Court of Appeals in the Seaview Trading, LLC case just affirmed the IRS ruling.
Therefore, if you have any partnership with fewer than 10 partners in a partnership and if any of the partners are a single member LLC or revocable living trust, the partnership does not qualify for the small partnership exception. This means that if the partnership is late in filing its tax returns, it will owe the penalty for being late (or the partners can be hit with tax adjustments after their individual statute of limitations expires).
Although the tax rules indicate that single member LLCs and revocable living trusts are disregarded entities, they are still considered “flow-through” entities for purposes of Revenue Ruling 2004-88. Just something to watch out for.