Joint Ownership of LLC by Spouse in Community Property States

Modified on Tue, 20 Dec 2022 at 02:18 PM

Joint Ownership of LLC by Spouse in Community Property States

(Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washinton & Wisconsin)

Rev. Proc. 2002-69 addressed the issue of classification for an entity that is solely owned by husband and wife as community property under laws of a state, a foreign country or possession of the United States.

If there is a qualified entity owned by a husband and wife as community property owners, and they treat the entity as a:

  • Disregarded entity for federal tax purposes, the Internal Revenue Service will accept the position that the entity is disregarded for federal tax purposes.
  • Partnership for federal tax purposes, the Internal Revenue Service will accept the position that the entity is a partnership for federal tax purposes.

A change in the reporting position will be treated for federal tax purposes as a conversion of the entity.

A business entity is a qualified entity if:

  • the business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or possession of the United States;
  • No person other than one or both spouses would be considered an owner for federal tax purposes; and
  • The business entity is not treated as a corporation under IRC §310.7701-2.

Note:

If an LLC is owned by husband and wife in a non-community property state, the LLC should file as a Partnership.

LLCs owned by a husband and wife are not eligible to be "qualified joint ventures" (which can elect not be treated as partnerships) because they are state law entities. For more information see Election for Husband and Wife Unincorporated Businesses.

 

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