There are a number of reasons for making this election, such as reducing payroll taxes or various tax planning strategies (such as value freezes). They can make an election to be taxed as an S corporation. Once formed, the owners have a choice as to how they would like the entity taxed for purposes of Federal income tax. About S CorporationsĪn LLC is an entity formed under state law. The LLC then adopted a new company agreement and filed a request with the IRS to be treated as an S corporation. Income Tax Return for an S Corporation, for its first several years of operation.Īt some point, the LLC realized that the partnership language in its company agreement terminated its S corporation election. The LLC made an election to be taxed as an S corporation. This language included an allocation of profits with an allocation to eliminate negative capital accounts and a liquidation term that allocated the proceeds according to the capital accounts. The LLC’s company agreement included standard partnership tax allocation language. The taxpayer is a limited liability company (“LLC”). 5 Planning for the S Corporation Election.3 One Class of Stock and Partnership Allocations.
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