IRS wants me initially be classified as a partnership instead of LLC, is that okay?

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IRS wants me initially be classified as a partnership instead of LLC, is that okay?

I’m trying to start up a new business with my brother and father and since it would be a multi-member LLC, the IRS said ‘we must initially classify you as a partnership’ when applying for my EIN. Is that a problem? From what I understand, it just means each of us will include the business on our individual federal tax return next year, and that’s basically the only difference. Is that correct? I just want to make sure because I filed the certificate of formation for the LLC with my secretary of state so I don’t want to mess this up so early on.

Asked on May 21, 2018 under Business Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

How you are classified for tax purposes does not alter or affect the existence of an LLC or the protections (e.g. limited liability) you get under your state's laws for having an LLC; all the IRS's classification affects is federal tax treatment.
All multi-member LLCs, by the way, are classified (for tax purposes) as either a partnership ("pass through" or "disregarded" treatment: the profits and losses go directly to and are reported  and taxed with the members' other income) or as a "corporation" (corporate tax treatment; the LLC itsself is taxed on its income). "Partership" and "corporation" are the two modes of tax treatment.


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