Question: I purchased your Gold LLC formation package that included a Confidential Trust. My Confidential Trust is the sole owner of my LLC. My CPA advised me that my LLC should be taxed as an S corporation. I am completing the IRS Form 2553, Election by a Small Business Corporation, but I am not sure how to show the ownership and who should sign the form. What should I do?
Answer: Dealing with the IRS with respect to your LLC is different from everybody else. The following only applies to the IRS and tax treatment of your LLC that is owned solely by your Confidential Trust:
- Because the LLC is a single owner LLC the IRS pretends like it does not exist. The IRS calls a single member LLC a “disregarded entity” for federal income tax purposes. This is the default tax treatment for single member LLCs.
- Because the Confidential Trust is revocable the IRS treats it as a “grantor trust,” which means the IRS pretends like the Confidential Trust does not exist.
- The end result of the application of items 1 & 2 above is the IRS considers you to be the owner.
- Sign the IRS Form 2553 on page 2 Part 1 and after your signature put a comma and print the following text: “individually and as Trustee of the [name of your trust] Trust under Agreement dated [date of your trust agreement], a grantor trust.”
- If you are a resident of a community property state like Arizona and own the beneficial interest in the Confidential Trust as community property then both spouses must sign the Form 2553 per the instructions in item 4 above.
Send the completed and signed IRS Form 2553 to the IRS via Certified Mail, Return Receipt Requested. Make a transmittal letter that accompanies the Form 2553. Keep a copy of the letter, the Form 2553, the Certified Mail certificate and the green Return Receipt in a save place in case the IRS claims it never got your Form 2553.