The Single Member Limited Liability Company as Disregarded Entity: Now You See it, Now You Don’t

The power and complexity of the single member limited liability company (“SMLLC”) comes from a conceptual contradiction: the conflation of owner and organization for tax purposes and the separation of owner and entity for non-tax, state law purposes. The contraction has significant practical consequences, which this article explores and illustrates, considering: • The SMLLC in federal court (single member not permitted to represent the LLC) • The IRS’s tortuous path to determining whether an SMLLC’s sole member is liable for the SMLLC’s unpaid employment taxes (yes; yes vindicated by the courts; then no, as a matter of policy) • Transfer taxes on a single member’s contribution of land to the member’s solely-owned LLC (maybe taxable, maybe not) • Whether the membership transfer restrictions built into LLC statutes in order to prevent the separate creditors of an LLC member from intruding into the business of a multi-member LLC ought to be applied to allow a sole member to shelter assets from the claims of the sole member’s legitimate creditors (under advisement by one state supreme court for more than a year) The article concludes that “practitioners must exercise great caution when working with an SMLLC, because, depending on which legal regime applies, the SMLLC may be as visible and substantial as a stone wall, or as diaphanous and subject to disappearance as the Cheshire Cat.