Friday, November 16, 2012

Do I need separate EINs for each series of a Texas Series LLC?

Another issue that has not yet been resolved is whether a series must get an EIN that is separate from the Series LLC. The general consensus is "yes" the Series LLC and each series within the Series LLC (i.e. Sub-series) can and should get an EIN. The IRS in a Proposed Regulation from 2010 has indicated that each sub-series should be treated a separate entity for federal income tax purposes. Because Texas law does not require separate bank accounts for the various sub-series, it is tempting not to get separate EINs if a sub-series does not need a bank account and will not have employees.

The IRS had this to say about classification of the Series LLC and each sub-series (as of the date of this article, this is a proposed regulation, not a final regulation:

The proposed regulations do not address the entity status or filing requirements of series organizations for Federal tax purposes. A series organization generally is an entity for local law purposes. An organization that is an entity for local law purposes generally is treated as an entity for Federal tax purposes. However, an organization characterized as an entity for Federal income tax purposes may not have an income or information tax filing obligation. For example, §301.6031(a)-(1)(a)(3)(i) provides that a partnership with no income, deductions, or credits for Federal income tax purposes for a taxable year is not required to file a partnership return for that year. Generally, filing fees of a series organization paid by series of the series organization would be treated as expenses of the series and not as expenses of the series organization. Thus, a series organization characterized as a partnership for Federal tax purposes that does not have income, deductions, or credits for a taxable year need not file a partnership return for the year.

In other words, under the proposed regulation above, each sub-series of a Series LLC will be treated as a separate entity for federal income tax purposes. As a result, each sub-series will be classified under the “check-the-box” regulations and may make any federal tax election it is otherwise eligible to make independently of any other sub-series. For example (barring any affirmative elections):

ABC, LLC has two sub-series; ABC, LLC - Series 1 is owned my 1 member; ABC, LLC - Series 2 is owned my 2 members;

ABC, LLC - Series 1 will be treated as a sole proprietorship or disregarded entity and the sole member will report the profits of ABC, LLC - Series 1 on his/her personal 1040.

ABC, LLC - Series 2 will be treated as a partnership and thus will need to file a partnership tax return.

Getting back to the original question...Does the Series LLC and each sub-series need an EIN? The answer seems rather simple: Determine the tax classification of the Series LLC or sub-series and then determine which of them will require an EIN (the answer is almost always "yes" an EIN is needed). See why on this article Does my LLC need an EIN.

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