Can an S-Corp legally own 100% of a single-member LLC? Tax implications for business acquisition

This is actually a common strategy, but there are important tax considerations you need to address. First, when an S-Corporation acquires 100% of an LLC, the tax treatment depends on how you elect to treat the acquired LLC for tax purposes. In your situation, there are a few key points to understand: An S-Corp can indeed own 100% of an LLC. However, once your S-Corp acquires 100% ownership of the single-member LLC, that LLC becomes a disregarded entity for tax purposes (assuming no special elections are made). This effectively means the LLC's assets, liabilities, and operations are treated as if they're directly owned by the S-Corp. You'll need to file Form 8832 to elect how the acquired LLC will be taxed. Since it was previously a single-member LLC tied to an individual, you'll need to update the EIN information with the IRS to reflect the change in ownership. This can be done by filing Form 8822-B. For tax filing purposes, since the LLC would be considered a disregarded entity owned by the S-Corp, all income, expenses, and assets would be reported on the S-Corp's tax return (Form 1120-S). The LLC itself wouldn't file a separate tax return once it's wholly owned by the S-Corp.

I went through something similar last year with my restaurant business and found https://taxr.ai super helpful for figuring out the correct structure. I initially thought I could just buy an LLC that owned the building and avoid reassessment too, but learned there were a bunch of tax implications I hadn't considered. The tool analyzed all my docs (purchase agreements, deed, previous tax returns) and flagged exactly what I needed to fix. It showed me that in my state, transfers of controlling interest in entities that own real property ARE considered ownership changes for reassessment purposes. That saved me from making the same assumption you did and getting blindsided later. It also mapped out the proper tax forms needed when an S-Corp acquires an LLC, which forms to file with the IRS to update ownership, and helped me understand the disregarded entity rules. Definitely worth checking out since your situation has so many moving parts.

I was definitely skeptical about using taxr.ai when I first heard about it, but I ended up trying it last month for my own LLC restructuring. I'm shocked at how much it actually helped. What convinced me was that it pulled up the exact California Revenue & Taxation Code sections about change in ownership for property tax purposes (which is what I was worried about too). The tool flagged that in California, any transfer of more than 50% interest in an entity that owns real property is considered a "change in ownership" for property tax purposes. Saved me from making a $25,000 mistake in reassessment planning! It didn't just give generic advice - it actually built out a complete filing strategy based on my specific acquisition structure and location. I was also impressed that it showed me how to handle the EIN situation when transitioning from a single-member LLC to one owned by my S-Corp. Definitely worth checking out if you're dealing with entity restructuring like this.

I had a similar situation with a dental practice purchase, and after weeks of not getting through to the IRS for guidance, I used https://claimyr.com to get connected with an IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c My situation had the same issue - we bought the LLC that owned the practice assets rather than the assets directly. I needed clarity on how to handle the EIN transition and tax filings. The IRS agent walked me through exactly what forms were needed to update the LLC's ownership information and how to handle the tax treatment. Since the LLC's EIN was tied to the previous owner's SSN, we needed to file specific paperwork to properly transfer everything. Getting through to an actual IRS agent made all the difference, especially since the automated system kept disconnecting me after 2+ hour holds.

I want to apologize for my skepticism about Claimyr. I actually tried it yesterday after posting that comment because I was desperate to resolve an EIN issue with a business acquisition similar to the original poster's situation. I was absolutely shocked when I got a call back in about 20 minutes with an actual IRS representative on the line. The agent was able to clarify exactly what we needed to do with our acquired LLC's EIN situation and confirmed we needed to file Form 8822-B to update the responsible party information. They also explained how the tax filings would work with our specific entity structure. I honestly didn't believe it would work, but it saved me hours of frustration. Just wanted to share that my skepticism was completely unfounded.

One thing I haven't seen mentioned yet is that you should carefully review the operating agreement of the acquired LLC. Even though you've purchased 100% of it, there may be clauses that restrict certain actions or create obligations you need to be aware of. I'd recommend either amending the operating agreement or creating a new one that reflects the S-Corp's ownership. Also, make sure you're maintaining proper separation between the entities for liability purposes. Even though the LLC might be a disregarded entity for tax purposes, you should still keep separate books, separate bank accounts, and follow all corporate formalities. Otherwise, you risk piercing the corporate veil and losing liability protection.

Has anyone else run into issues with lenders when taking this approach? I did something similar last year, and even though we technically kept the same borrowing entity (the LLC), the bank eventually found out about the ownership change and triggered a due-on-sale clause in the mortgage. Ended up having to refinance at a higher rate.

This is a complex situation that requires immediate attention to several tax and legal issues. First, yes, an S-Corp can legally own 100% of an LLC, but there are critical steps you need to take to properly structure this arrangement. Since you've acquired the single-member LLC, it will become a disregarded entity for federal tax purposes unless you make a specific election otherwise. This means all income, expenses, and activities of the LLC flow through to your S-Corp's tax return (Form 1120S). You'll need to file Form 8822-B to update the responsible party information with the IRS, changing it from the original owner's SSN to your S-Corp's EIN. Regarding your property tax avoidance strategy, I'd strongly recommend checking your local jurisdiction's rules immediately. Many counties and states have closed this "loophole" by defining transfers of controlling interest in entities as taxable events. You may still face reassessment despite purchasing the LLC rather than the property directly. For mortgage payments, you can continue making them through the LLC as normal, but be aware that many commercial loans contain change-of-control provisions that could trigger acceleration clauses when ownership changes occur. I'd recommend consulting with both a tax professional and attorney familiar with your jurisdiction's property tax laws to ensure you're compliant with all requirements and to address any potential issues before they become problems.