LLC Electing S corporation Status

A multi-member LLC classified as a partnership (the default treatment prior to an entity election), can elect under the check-the-box rules to be classified as a corporation. After the election is made, the entity is deemed to have transferred all of its assets and liabilities to the corporation in exchange for the corporation's stock. The entity is deemed to have distributed the corporation's stock to its owners in a complete liquidation (Regs. Sec. 301.7701-3(g)(1)).

The deemed transfer to the corporation is tax-free, provided Sec. 351(a) applies and the LLC's liabilities do not exceed the basis of its assets (Sec. 357(c)).

An entity that makes an entity election to be taxed as a corporation can elect S status if the entity and its shareholders meet the S corporation eligibility requirements (Regs. Sec. 1.1361-1(c); see also Regs. Sec. 301.7701-3).