Question:   For IRS purposes, how do I classify a limited liability company? Is it a sole proprietorship, partnership or a corporation?

Answer:   A limited liability company (LLC) is an entity:

• Formed under state law by filing articles of organization as an LLC.
• Where none of the members of an LLC are personally liable for its debts.
• Must be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity disregarded as separate from its owner), a partnership, or a corporation.

If the LLC has:

• Only one owner, (see Publication 555, on community property states), it will automatically be treated as if it were a sole proprietorship (a disregarded entity), unless an election is made for it to be treated as a corporation.
• Has two or more owners, it will automatically be treated as a partnership unless an election is made for it to be treated as a corporation.

If the LLC does not make a classification election, a default classification of disregarded entity (single-member LLC) or partnership (multi-member LLC) will apply. The election referred to is made using the Form 8832 (PDF), Entity Classification Election. If a taxpayer does not file Form 8832 (PDF), a default classification will apply.