Roughly 70% of all LLCs are single-member LLCs whose members are individuals. Thus, single-member LLCs are central to any LLC practice. You literally can’t know too much about them. Below are a citation to and the introductory paragraphs of an important law journal article about single-member LLCs:
36 Va. Tax Rev. 323
Virginia Tax Review
Philip Manns, Jr., Timothy M. Todd
Copyright © 2017 by The Virginia Tax Review Association; F. Philip Manns, Jr., Timothy M. Todd
THE TAX LIFECYCLE OF A SINGLE-MEMBER LLC
The single-member LLC (SMLLC) is ubiquitous. Despite its ubiquity, the Internal Revenue Code (Code) does not squarely address its tax consequences nor even contemplate its existence. This article examines the tax lifecycle of an SMLLC through its formation, operation, and exit event (e.g., sale, gift, or deathtime transfer).
This article identifies and isolates a tax asymmetry that arises from the U.S. Tax Court’s decision in Pierre v. Commissioner. Despite the check-the-box regulations, which disregard the SMLLC, Pierre regards the SMLLC for federal gift tax purposes. This asymmetry has several tax consequences, including a potential prophylactic immunization of transfers to SMLLCs against application of section 2036–which claws back into the federal gross estate transfers when the transferor retains an interest–in the family partnership context.
Consequently, this article demonstrates that the SMLLC can be used to blunt the negative effects of section 2512 (a gift tax provision), section 1015 (an income tax provision), and section 2036 (an estate tax provision). In effect, due to the Pierre asymmetry, the SMLLC is the ideal initial entity in a gifting strategy.