GlossaryUS
What is a disregarded entity?
An entity disregarded as separate from its owner
Short answer
A disregarded entity is a single-owner business that is not treated as separate from its owner for federal income tax; its activity is reported on the owner’s return. A single-member LLC is one unless it elects to be taxed as a corporation.
Explained
If the owner is an individual, the LLC’s activity generally goes on the owner’s individual return; if the owner is a company, it is reported like a division of that company. Even so, the entity is treated as separate for employment tax and certain excise taxes.
A special rule applies to a US disregarded entity wholly owned by a foreign person: it is treated as a corporation for Form 5472 purposes and files Form 5472 with a pro forma Form 1120 every year, using the LLC’s own EIN.
Good to know
- Being disregarded does not mean there is nothing to file: foreign-owned single-member LLCs file Form 5472.
- Most new single-member LLCs need an EIN, and one can also be obtained to open a bank account.
- The classification can be changed on Form 8832; weigh the tax consequences before electing.
Official sources
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This page is general information, not legal or tax advice. Rules change; check the official source for the latest position or talk to us.
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