Disregard Entities - A Little Less Disregarded

Under federal tax rules, at times an entity owned by another taxpayer may be "disregarded" for tax purposes. This generally means that all of the tax incidents of the disregarded entity are reported by its owner. The two principal types of disregarded entities are Qualified Subchapter S Subsidiaries and entities that are owned by one owner and are not taxed as a corporation/association under the check-the-box rules (e.g., single member limited liability companies).

The "disregarded" status of such entities may soon disappear for certain tax issues. Under proposed regulations, such entities would cease to be disregarded for employment tax and related reporting purposes, as well as for certain excise tax rules. Since the rules are only proposed, they are not currently applicable. Preamble to Prop Reg 10/17/2005 ; Prop Reg § 1.34-1 ; Prop Reg § 1.1361-4 ; Prop Reg § 301.7701-2.