The use of disregarded entities is an important tool to consider when a client is seeking to move assets between entities and does not wish to incur any income tax consequences. A disregarded entity is a limited liability company for state law purposes, but is not recognized as an entity for income tax purposes. This is because for federal income tax purposes all of the income and deductions of a disregarded entity are attributable directly to the sole member of the limited liability company. Thus, if a corporation is considering transferring equipment to another entity for asset protection reasons, the corporation may consider forming a wholly owned limited liability company. The transfer of the equipment to a disregarded limited liability company can be done without any federal income tax consequences. A common trap is that even though a limited liability company may be disregarded for federal income tax purposes, it is not disregarded for employment tax purposes and may not be disregarded for state and local tax purposes.
For more information, please call Matthew Policastro in our Las Vegas, Nevada office at 702-550-4465.