What Is a Disregarded Entity?


Quick Answer

When the owner of a legally separated company chooses to have the separation ignored for federal tax purposes, the business is known as a disregarded entity. If an individual owns the entity, tax laws consider the business a sole proprietorship.

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Full Answer

When a partnership or corporation owns a business entity, tax laws say the business is a branch or division of the owning entity.

As of 2014, the only company type that fulfills the disregarded entity qualifications set by the Internal Revenue Service is a single-member limited liability company. Officers of the LLC must apply for disregarded entity status for the law not to consider the business entity a corporation

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