LLC Owned by a Corporation: Disregarded, and What It Files

Can a corporation own an LLC, and is the LLC disregarded?

Yes. A C corporation or an S corporation can own an LLC. When the corporation is the LLC's only owner, the LLC is disregarded for federal income tax unless it elects on Form 8832 to be taxed as a corporation, and the IRS treats it as a division of the parent (IRS: single-member LLCs; Treas. Reg. 301.7701-3). The LLC files no income tax return of its own: its income and expenses go on the parent's Form 1120 or Form 1120-S.

A C corporation parent pays federal tax at 21% on its own profit and the LLC's together (Form 1120 instructions). An S corporation parent passes the combined result to its shareholders.

"Disregarded" covers income tax only. For payroll and certain excise taxes the LLC is a separate taxpayer, and each state applies its own rules.

What makes a case not simple: payroll in the LLC, a second member, an LLC formed or working in another state, a foreign parent, an S corporation parent planning to bring an investor into either company, or an LLC that has already filed returns, Forms 1099 or payroll under the wrong name or EIN. Each changes which returns are due and who files them.

What to gather: the parent's entity type, EIN and latest return; the LLC's formation papers, state and operating agreement; every member and their share; payroll plans; the states where the LLC will operate; and any returns, Forms 1099 or IRS letters already issued in the LLC's own name.

Does an S corporation lose its S election by owning an LLC?

No. Owning a disregarded LLC does not end an S election. The S rules limit who may hold the S corporation's shares, how many shareholders it may have and its classes of stock, not what the S corporation itself owns (IRC 1361(b); IRS: S corporations). The LLC's income and expenses simply appear on the S corporation's Form 1120-S.

The reverse case, an LLC owning shares of an S corporation, is a different question: see who can own an S corporation. If another member later joins the LLC, the LLC becomes a partnership with the S corporation as one partner; that alone does not end the S election, which turns on the S corporation's own shareholders and stock.

Does an LLC owned by a corporation need its own EIN?

Yes, if it will have employees or owe certain federal excise taxes, because for those taxes it is a separate entity that must use its own name and EIN (IRS: single-member LLCs; IRS: when to get a new EIN). With no employees and no excise tax, it can report as a division under the parent's EIN. The exception is a foreign parent: the LLC then files its own Form 5472, which asks for the LLC's EIN (Form 5472). It may still get an EIN if a bank or state law requires one.

Even with its own EIN, the LLC generally uses the parent's EIN for income tax reporting, such as on Form W-9 and on the information returns (Forms 1099) it files (IRS: single-member LLCs). The LLC's own EIN is for payroll, excise tax and accounts that ask for it. For the application steps, see EIN for a single-member LLC.

What does a corporation's LLC put on Form W-9?

The parent's details, with the LLC named on line 2. The Form W-9 instructions say a disregarded entity enters its owner's name on line 1, checks the owner's tax classification on line 3a and gives the owner's taxpayer number; the requester instructions repeat the line 1 and line 2 rule.

Because the payee is then a corporation, payers generally file no Form 1099-NEC or 1099-MISC; any they must file, such as for legal services or medical and health care payments, shows the parent's name and EIN (Instructions for Forms 1099-MISC and 1099-NEC). A foreign parent gives a Form W-8 instead of a Form W-9, even if it has a US taxpayer number; see which tax form a foreign-owned LLC gives payers.

Who runs payroll when a corporation's LLC has employees?

The LLC does, as the employer, under its own name and EIN. A disregarded LLC is treated as a corporation for employment taxes, so it withholds income tax, pays Social Security, Medicare and federal unemployment taxes, files Forms 941 and 940, gives employees Forms W-2 and makes the deposits. Employer penalties for payroll failures apply to the LLC (Treas. Reg. 301.7701-2(c)(2)(iv)). Neither company shields the people running that payroll: anyone with the duty and power to pay over the tax withheld from employees' pay who willfully does not, such as an officer who controls the LLC's payroll, can owe that amount personally (IRC 6672; IRS: trust fund recovery penalty).

For income tax, the wages and the employer's payroll taxes are still the parent's deductions, because the regulations treat a disregarded LLC's activities as a branch or division of its owner (Treas. Reg. 301.7701-2(a)). Record the payroll in the LLC's books; see payroll journal entries.

What if the LLC has a second owner, such as a founder or a partner company?

With two or more members, the LLC is a partnership by default and files its own Form 1065 (Treas. Reg. 301.7701-3(b); Form 1065 instructions). That holds only when the other member is a separate taxpayer: if it is disregarded into the parent, such as another single-member LLC the parent wholly owns, the LLC still has one owner for federal tax and stays disregarded (Rev. Rul. 2004-77). A true two-owner LLC needs its own EIN and gives a Schedule K-1 to each member. The corporation reports its share on its own Form 1120 or 1120-S; the other member, a person or a company, reports theirs on their own return.

The Form 1065 instructions set the due date, penalty, capital account reporting (item L) and accounting method rules; Rev. Proc. 2025-32 sets the indexed amounts; the ownership questions are on Form 1120 and Form 1120-S.

How profits, losses and cash are split belongs in the operating agreement; see operating agreement tax terms. If a member joins an existing single-member LLC, see adding a member to your LLC.

Should the LLC elect to be taxed as a corporation instead?

It can, on Form 8832, and it is then a separate corporation for federal tax with its own return (About Form 8832). The trade-off: while disregarded, the LLC's profit and loss net with the parent's on one return; as a corporation, it pays its own tax and its losses offset only its own income, unless a route below puts the two back on one return.

• C corporation parent: if the parent owns at least 80% of the subsidiary's voting power and value, the two can file one consolidated return (IRC 1504(a)). Each member consents in the first year, and a group that has filed consolidated generally must keep doing so unless the IRS allows it to stop (Treas. Reg. 1.1502-75).
• S corporation parent: no consolidated return, because an S corporation cannot be part of an affiliated group (IRC 1504(b)). An eligible domestic corporation the S parent wholly owns can instead be a qualified subchapter S subsidiary by Form 8869, which treats its assets, income and deductions as the parent's (About Form 8869). For a wholly owned LLC, that is the same one-return result it has without any election.
• Hard to reverse: a later election is a deemed transfer: switching to corporate tax is treated as the parent contributing the LLC's assets and debts to a new corporation for its stock, and switching back as a liquidation (Treas. Reg. 301.7701-3(g)). After an election that changes its classification, the LLC generally cannot change again by election for 60 months; an initial election effective on formation does not count (Form 8832 instructions).

For how to file the election and its deadlines, see LLC taxed as a C corporation.

What state filings does the LLC still have?

States treat the LLC as its own legal entity, so it keeps its own state filings even when the IRS disregards it. Expect a periodic report or fee in most formation states, though some, such as Arizona, ask an LLC for no annual report (Arizona Corporation Commission); registration in each other state where it does business; and, in some states, a return or tax of its own.

California's Form 568 for a single-member LLC is due on the 15th day of the 3rd month after year-end when its owner is an S corporation, and the 15th day of the 4th month after the owner's year-end when its owner is a C corporation (FTB Form 568 booklet). For the amounts, see California minimum tax and LLC fee and Texas franchise tax. For other states, see LLC annual fees and reports by state and registering in another state.

What must the parent's books show?

Two separate sets of books that combine cleanly. For federal income tax a disregarded LLC is part of the parent, but the LLC still needs its own records for payroll, state returns and its legal existence. The IRS says a taxpayer in more than one business should keep a complete and separate set of records for each (Publication 583).

• A bank account in the LLC's name, used only for the LLC.
• Money the parent puts in, recorded as the parent's investment in the LLC and as owner's equity on the LLC's books.
• Money moved back to the parent, recorded as a distribution or a loan repayment, not as an expense unless it pays for goods or services the parent actually provided.
• Costs one company pays for the other, recorded as amounts due to and from each other, with the basis for any shared cost written down.
• The LLC's payroll, matching its Forms 941 and W-2.

When a disregarded LLC's books are combined into the parent's return, the balances between the two companies offset. A partnership LLC also tracks each member's capital account. For recording transfers across companies, see books for several companies.

Does the LLC's liability protection hold if money is mixed?

That depends on state law, not tax rules. Separate bank accounts, contracts signed in the LLC's own name and recorded transfers between the companies support the separation; a lawyer can assess how the LLC's state treats it.

What if the parent corporation is foreign?

A US LLC wholly owned by a foreign corporation is a foreign-owned US disregarded entity. For Form 5472 it is treated as a US corporation: it files Form 5472 attached to a pro forma Form 1120 (one that carries little more than the LLC's name, address and EIN) for each year it has a reportable transaction with a related party, including money its owner puts in or takes out. The penalty for not filing is $25,000 for each year it is not filed, with more if the failure continues after IRS notice (Form 5472 instructions; Form 1120 instructions).

Because the LLC is disregarded, a US business run through it is the foreign corporation's own US business, which can require the foreign corporation to file its own US return, Form 1120-F (Form 1120-F instructions); see does a foreign company file a US tax return.

For the yearly filing, see foreign-owned single-member LLC filing. For the setup, see setting up a US subsidiary for a foreign company and a foreign company entering the US; for a Canadian parent, see setting up a US subsidiary from Canada.

Example

These examples are illustrative; all amounts are in US dollars.

A Texas S corporation adds a product-line LLC

A Texas S corporation forms a single-member LLC for a new product line. The LLC gets its own EIN because it will employ two staff; it runs their payroll, files Forms 941 and 940 and issues their W-2s under that EIN. After wages, the LLC earns $80,000. It files no federal income tax return: the $80,000 goes on the parent's Form 1120-S with the parent's other results, and from there to the shareholders' K-1s. When customers ask for a W-9, the LLC gives the parent's name and EIN, with its own name on line 2. For Texas franchise tax, the LLC is a taxable entity: it files its own report unless the parent's combined group report includes it.

A C corporation and an outside partner own half each

A C corporation and an outside company each own half of a new LLC. The LLC is a calendar-year partnership: it files Form 1065 by March 15 and sends each member a K-1. The LLC earns $100,000, so each K-1 shows $50,000. The corporation reports its $50,000 share on Form 1120, where at the 21% federal rate it adds $10,500 of tax. The corporation's capital account on its K-1: $40,000 put in, plus the $50,000 share, minus a $20,000 distribution, ends the year at $70,000.

A Nevada C corporation forms its LLC in California

A Nevada C corporation forms a single-member LLC in California and runs its business there. Federally the LLC is a division: it files no federal return of its own, and its results go on the parent's Form 1120. California still requires the LLC to file Form 568 and pay the $800 annual tax each year until it cancels, plus the LLC fee once its California income reaches the first tier. Because its owner is a C corporation, the LLC's Form 568 is due on the 15th day of the 4th month after the parent's year-end. Because the LLC does business in California, the Nevada parent does too and files its own California Form 100. Assume the parent registers with the California Secretary of State when the LLC starts: in that first taxable year it pays tax on its California income with no $800 minimum, and from the second year it pays at least the $800 minimum franchise tax. Unregistered, it would owe the minimum from the first year.

Different for you?

• The LLC is not formed yet: settle its state, its EIN and who signs for the parent before filing; see business formation help.
• The LLC will have employees: it needs its own EIN and payroll accounts before the first paycheck; see setting up payroll and get corporate tax help to map which company files what.
• A founder, investor or partner company is joining the LLC: the LLC becomes a partnership with Form 1065 and K-1s; see operating agreement tax terms and bring the draft agreement to corporate tax help.
• An S corporation parent plans to bring in investors: check who can own an S corporation before anyone signs, with corporate tax help.
• You own an LLC yourself and want to put it under your corporation: from the transfer date its results go on the corporation's return; plan the move with corporate tax help first.
• You are still choosing between a DBA, a new LLC or a holding company: see running more than one business.
• The LLC may elect corporate tax or join a consolidated return: see LLC taxed as a C corporation and get corporate tax help.
• The LLC is formed or works in another state: see registering in another state and LLC annual fees and reports by state, and ask corporate tax help whether the parent must file there too.
• The parent is outside the US: see setting up a US subsidiary for a foreign company, or from Canada, and get cross-border tax help before money first moves between the companies, since those transfers are reportable on Form 5472.
• The LLC already filed under its own name or EIN, or skipped a year: past returns, Forms 1099 and payroll forms need to be matched to the right filer; bring them and any IRS letters to corporate tax help.
• The two companies' books or intercompany balances do not reconcile: see books for several companies and bookkeeping help.