Disregarded Entities (Portfolio 704)


Howard Abrams

Visiting Professor

Harvard Law School


Fred T. Witt


LLC Tax Solutions, LLC

At a glance

I. Introduction
II. Formation and Classification of a “Check-the-Box” Disregarded Entity
III. Use of Disregarded Entities
IV. Qualified Subchapter S Subsidiaries
V. Qualified Real Estate Investment Trust Subsidiaries


Bloomberg Tax Portfolio, Disregarded Entities, No. 704, discusses entities that are recognized as having a legal status separate from their owners for certain purposes but are totally ignored for federal income tax purposes. The three types of disregarded entities are entities disregarded under the elective classification regime, qualified S corporation subsidiaries, and qualified real estate investment trust subsidiaries. For each type of entity, qualification, formation, conversion, operation, and termination issues are addressed along with use of the entity in specific contexts including corporate reorganizations, partnership transactions, and like-kind exchanges. Application of specific provisions such as the at-risk rules and the cancellation of indebtedness provisions are discussed. Use of disregarded entities in cross-border transactions and their impact on the direct and indirect foreign tax credit also are described.

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