Using your SMLLC to be your Partner on a New LLC Entity

[Jay R.]

Hello BP! I have a SMLLC (single member LLC) that is currently setup to be Taxed as an S-Corp. I am the only Manager/Member. I wanted to form a new multi-member LLC Taxed as a Partnership. I understand it is perfectly legal for other entities to be "Partners/Members/Managers" in this new Partnership/LLC. BUT I was wondering if the IRS would allow me to use my SMLLC as my other "Partner" in this new Partnership/LLC? Technically speaking, I am the only "natural person" in both entities. Also, is there a tax benefit in structuring my entities this way? The asset protection benefit is that I can utilize Special Allocation strategies whereby, I, as a natural personal individual, would own less than 10% of this new Partnership/LLC and my SMLLC would own the remainder 90% thus the majority tax responsibility would flow through to the SMLLC.

Any thoughts from the professionals of BP is greatly appreciated!

[David M.]

@Jay R.

There is no real difference between a the two. The main diff is that with a partnership you have another return to file, and thus more accounting costs. Keep it simple and use a single member LLC.

Also, if you pass costs/losses to the S Corp side, I could see them being "trapped" or used within the S Corp which might not be so good.