Easy, Partner: Becoming a Tax Partnership by Adding a New Member to a Single Member LLC

This post is a primer on the federal income tax effects of adding a new member to a limited liability company (“LLC”) that goes from a single member limited liability company (“SMLLC”) to a two member LLC.  These effects include the conversion of the LLC being treated as a disregarded entity (“DRE”) to a partnership for federal income tax purposes. I will also highlight some related issues that will be discussed in subsequent posts. Sample Fact Pattern: Assume that in 2013 Clint contributes $35,000 in cash to a newly formed LLC to operate a small service business.[1] As a result of the contribution, the LLC only has one member (i.e., a single member LLC; SMLLC). With the contributed cash, the LLC then purchases office equipment [...]