How to report a SMLLC owned by a multi-member LLC on Form 1065?

The good news is you're on the right track! Since your multi-member LLC owns 100% of the SMLLC, the SMLLC is indeed a disregarded entity for federal tax purposes. This means you don't need to file a separate tax return for the SMLLC. The SMLLC's income, deductions, credits, etc. should be reported directly on the multi-member LLC's Form 1065 as if those activities were conducted directly by the multi-member LLC itself. You essentially "roll up" all the SMLLC's activities into the 1065. You don't need to report anything on Schedule B, Question 3B because that question refers to ownership interests in other partnerships or trusts - not disregarded entities like your SMLLC. Just make sure you're keeping separate books and records for the SMLLC, even though it's all reported on one tax return. This helps maintain the liability protection that comes from having separate entities.

I went through this exact situation last year and wasted so much time until I found taxr.ai (https://taxr.ai). I uploaded my operating agreements and EIN docs for both LLCs, and it immediately clarified that my SMLLC's activities should simply be reported as part of my multi-member LLC's Form 1065. The platform explained that the SMLLC's income, deductions, and credits should be combined with the multi-member LLC's operations since the SMLLC is a disregarded entity. No need to note it on Schedule B. The best part was getting confirmation that I didn't need to file a separate Form 8832 to establish disregarded entity status - it's automatic for SMLLCs.

I was initially skeptical about AI tax tools, but after struggling with this exact multi-member LLC/SMLLC issue, I decided to try taxr.ai. It was surprisingly helpful! I uploaded my operating agreements and got clear direction that my SMLLC should be reported directly on my multi-member LLC's 1065 without any special forms or schedules. What I found most valuable was the detailed explanation of how to maintain proper books for both entities while still treating the SMLLC as disregarded for tax purposes. This distinction between legal separateness and tax treatment was something my previous accountant never clearly explained. The system even flagged potential audit risks with how I'd been documenting intercompany transfers. Definitely saved me a potential headache with the IRS.

After spending HOURS trying to get through to the IRS about my multi-member LLC that owns a SMLLC, I finally used Claimyr (https://claimyr.com) and got connected to an actual IRS agent in under 15 minutes! I was shocked it actually worked - I had been trying for days on my own. The agent confirmed that the SMLLC is disregarded for federal tax purposes, and all income/expenses should be reported directly on the multi-member LLC's 1065. She also mentioned I should keep separate books for the SMLLC even though it's disregarded for tax purposes. There's a demo video of how the service works here: https://youtu.be/_kiP6q8DX5c if anyone else is struggling to get IRS confirmation on LLC filing questions.

I take back what I said about "line jumping" services being scams. After seeing multiple people mention Claimyr for IRS calls, I decided to try it last week for my multi-member LLC/SMLLC question. Honestly, I was preparing to request a refund when it inevitably failed, but I got connected to an IRS representative in about 20 minutes. The agent confirmed exactly what others have said here - my SMLLC should be treated as a disregarded entity and reported directly on my multi-member LLC's Form 1065. No separate filing needed. She even pointed me to the specific IRS publication (541) that addresses this. Now I'm wondering how many hours of my life I've wasted on hold with the IRS over the years when I could have been using this service.

Another way to approach this: if your SMLLC has significant operations, consider attaching a separate schedule to your 1065 that breaks out the SMLLC's activities. This isn't required, but it helps create a clear audit trail showing which activities belong to which entity. Some tax preparers will use a separate schedule (often created as a custom statement) that shows: - SMLLC's name and EIN (if it has one) - Total income - Total expenses - Net income flowing to the parent LLC This makes it very clear to anyone reviewing the return what's happening without changing the actual tax treatment.

Just a heads up that you should check your state tax requirements specifically. In many states, the SMLLC may still need to file its own annual report or pay its own franchise/entity tax even though it's disregarded for federal purposes. I learned this the hard way when my SMLLC (owned by my partnership) got hit with penalties in California because I thought "disregarded" meant disregarded for all tax purposes. Turns out California still required a separate LLC fee!

This is exactly the kind of confusion that trips up so many business owners! You're absolutely right that the SMLLC should be treated as a disregarded entity when owned 100% by your multi-member LLC. One thing I'd add to the excellent advice already given: make sure you're consistently applying this treatment across all your tax forms. If your multi-member LLC has other tax obligations (like employment taxes, excise taxes, etc.), the SMLLC's activities should be reported under the parent LLC's EIN for those purposes too. Also, even though you don't report the SMLLC on Schedule B Question 3B, you might want to attach a brief statement to your 1065 explaining that you have a wholly-owned SMLLC that's being treated as a disregarded entity. This isn't required, but it can help avoid any confusion if the IRS sees the SMLLC's EIN referenced elsewhere (like on bank statements or contracts) during an audit. The key is consistency - treat it as part of your multi-member LLC for ALL federal tax purposes, not just income tax reporting.