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15 J. Passthrough Entities 37 (2012)
S Corp LLCs - Planning Opportunity or Solution in Search of a Problem?

handle is hein.journals/passtent15 and id is 241 raw text is: State Lai By Thomas E. Rutlh S Corp Search LLCs-Planning Opport of a Problem? i Thomas E. Rutledge is a Member in the law firm of Stoll Keenon Ogden PLLC in Louisville, Kentucky. Q uite often I encounter businesses orga- nized as LLCs for which an S corporation (S corp) election under Code Sec. 1362 has n made. Sometimes these elections have been made in the context of an operating agree- ment that contemplates the election. At other times the election was clearly not contemplated-how else would you explain multiple classes of inter- ests and special allocations? The consequences of the latter situation are clear-the LLC cannot both operate in accordance with its operating agreement and satisfy the requirements for S corp status. But even in the former instances, oftentimes the oper- ating agreement does not mandate a regime that satisfies the rules for continued compliance with the rules governing S corporations., The S Corp LLC- Mixing State and Tax Law Under the check-the-box classification regulations2 adopted as of January 1, 1997, all domestic business organizations that are incorporated under state law are, ab initio, classified as corporations., On the other hand, unincorporated business organizations are eligible entities that may elect how they would like to be classified for federal tax purposes. While a corporation is automatically subject to Subchap- ter C and, if eligible to do so, may elect to be an S corporation, an unincorporated entity has a default classification as a partnership subject to Subchap- ter K so long as it has at least two owners or as a disregarded entity if it has only a single member. Assuming that the requirements for doing so are satis- JOURNAL OF PASSTHROUGH ENTITIES i I