IRS Issues Guidance On Series LLCs: Will The States Follow?

By clarifying the circumstances under which a series will be treated as a separate entity and the interrelationship with the check-the-box regulations, the long-awaited Proposed Series LLC Regulations should benefit those taxpayers using, or considering the use of, series LLCs. The authors believe that once the proposed regulations are issued in final form, this guidance will result in a dramatic increase in the use of series LLCs. As the use of these hybrid entities inevitably grows, it will be crucial for state and local taxing authorities to provide their own guidance regarding whether they also will treat a series as a separate entity, for both income taxes and other types of taxes imposed on the entity. Given the multitude of state and local taxing jurisdictions, however, it is unlikely that there will ever be uniformity in the tax treatment of series LLCs, a situation that taxpayers could find both beneficial and harmful. (M. W. McLoughlin and B. P. Ely, 13 Business Entities No. 1, 14 (January/February 2011)).