Can an S-Corp own multiple sole proprietor LLCs for liability protection?

The confusion here is completely understandable because there's a fundamental misunderstanding about what a "sole proprietor LLC" actually is. An LLC is a separate legal entity, while a sole proprietorship is not - it's simply you doing business as yourself. When an LLC has only one owner (called a single-member LLC), it's treated by default as a "disregarded entity" for federal tax purposes - meaning the IRS essentially ignores it and treats the activity as if it were a sole proprietorship. But it's still an LLC for legal purposes, not actually a sole proprietorship. An S-Corporation can definitely own LLCs. Those LLCs would be considered subsidiaries of the S-Corp. However, there's an important distinction: when an S-Corp owns an LLC, that LLC cannot be treated as a "disregarded entity" or "sole proprietorship" for tax purposes because the owner is no longer an individual - it's a corporation. The LLC subsidiaries would either need to be treated as separate corporations and make their own S-Corp elections, or more commonly, they'd be treated as divisions of the parent S-Corp (with all income flowing to the S-Corp). This is likely where the confusion with your tax advisor is coming from.

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I was really skeptical about using an AI tax tool, but after that conversation about taxr.ai, I decided to give it a try for my business structure questions. Honestly kind of blown away by how helpful it was. I've been trying to figure out how to separate my consulting business from my rental property for liability protection without creating a tax nightmare. The tool actually explained that while an S-Corp can own LLCs, there are specific rules about how the income flows through, and it gave me a clear breakdown of how the QBI deduction would apply in my case. It even identified a potential issue with passive activity rules that my accountant hadn't mentioned. Ended up going with a slightly different structure than I originally planned based on the analysis, and my tax advisor actually agreed it was the better approach when I showed him the report. Saved me from making what would have been a costly mistake in how I was planning to structure things.

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I think there's some confusion in this thread about what the original poster actually wants to do. If I understand correctly, they want to create an S-Corp that owns multiple LLCs, but have those LLCs taxed as sole proprietorships. This doesn't work because: 1. A sole proprietorship = an individual doing business 2. Once an LLC is owned by an S-Corp (not an individual), it can't be a sole proprietorship 3. LLCs owned by an S-Corp are either treated as divisions of the S-Corp or can elect corporate treatment What you're probably looking for is called a "holding company structure" where your S-Corp owns multiple LLCs, but each LLC is just a division of the S-Corp. This gives you the liability protection between business lines while having everything reported on one S-Corp tax return.

Has anyone actually tested this liability protection in real life? I have a similar structure but my attorney warned me that courts can sometimes "pierce the veil" if the businesses aren't truly operated as separate entities.

This thread has been incredibly helpful in clarifying the S-Corp owning LLCs structure. I'm in a similar situation with multiple business ventures and was also confused about the terminology. One thing I'd add based on my research is that you'll want to consider the state-level implications too. While federally the LLCs owned by your S-Corp will be treated as divisions, some states have different rules for state tax purposes. For example, some states require separate LLC tax filings even when they're federally disregarded entities owned by an S-Corp. Also, regarding the liability protection discussion - make sure you understand that while the LLC structure protects between business lines, it doesn't protect you personally from professional liability in businesses where you're directly involved. If you're providing professional services through any of these LLCs, you'll still have personal exposure for your own actions, regardless of the entity structure. The holding company approach with an S-Corp owning multiple LLCs is definitely a solid strategy for what you're trying to accomplish, just make sure your implementation covers all the operational details mentioned in the comments above.