Disregarded Entity

A disregarded entity is a business entity with one owner that the IRS ignores for income tax purposes: its activity is reported directly on the owner's return as if the entity did not exist. The most common example is a single-member LLC that has not elected corporate treatment. Its income lands on the owner's Schedule C (or Schedule E for rentals), and a wholly owned LLC under a corporation or partnership simply folds into its parent's return. Disregarded status applies only to income tax. The entity is still respected for employment taxes, certain excise taxes, and state law liability protection, and it still needs its own EIN if it has employees. A disregarded entity becomes a partnership the moment it admits a second owner, and can elect corporate status at any time.