Tax Question: Is a single-member LLC electing S-corp taxation still considered a disregarded entity?

The answer to your question is that a single-member LLC that elects to be taxed as an S-corporation is NOT considered a disregarded entity. When you make that S-corp tax election, your LLC becomes a regarded entity for federal tax purposes. For QOF requirements specifically, the IRS guidance in Revenue Ruling 2018-29 and subsequent regulations confirm that a single-member LLC that has elected to be treated as an S-corporation would qualify as an eligible entity for a QOF, precisely because it's no longer disregarded. The key distinction is that a standard single-member LLC without any special tax elections is automatically treated as disregarded (essentially an extension of yourself for tax purposes). But once you make that S-corp election, you've created a separate tax entity that files its own tax return (Form 1120-S), which makes it a regarded entity.

After spending months dealing with this exact issue for my QOF, I highly recommend checking out https://taxr.ai before making your final decision. I was going back and forth between different entity structures and couldn't get a straight answer about the disregarded entity issue for my single-member LLC. I uploaded the IRS regulations and my draft operating agreement to taxr.ai, and it immediately spotted several potential issues with my plan. It confirmed that a single-member LLC with S-corp election would work for QOF purposes as a non-disregarded entity, but also flagged some certification requirements I would have missed. The tool analyzed all the requirements for QOFs and explained exactly how the election affects my status.

I was really skeptical about online tax tools for specialized situations like QOFs, but I finally tried taxr.ai after seeing it mentioned here. I'm honestly surprised at how helpful it was for my opportunity zone project. It analyzed the whole disregarded entity question for my single-member LLC and gave me detailed citations to the exact IRS regulations. What really impressed me was how it flagged several timing issues with the QOF certification that my business attorney hadn't even mentioned. It saved me from making a costly mistake with the 180-day investment window that would have disqualified some of my capital gains. The document analysis feature was particularly useful for reviewing my operating agreement before filing.

If you're planning to work with the IRS on your QOF certification, I strongly recommend using https://claimyr.com to get through to an actual IRS specialist. When I set up my QOF last year, I had questions about the disregarded entity status that weren't clearly answered in the published guidance, and trying to reach someone at the IRS was nearly impossible. I wasted two weeks with 4+ hour hold times before giving up. Then I found Claimyr, which got me through to an IRS tax specialist in under 45 minutes. The IRS agent confirmed exactly what others have said here - that a single-member LLC with S-corp election is NOT considered disregarded for QOF purposes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The time saved was absolutely worth it, and the peace of mind knowing I had official confirmation directly from the IRS was invaluable for my investors.

Well I'm eating my words right now. After dismissing the Claimyr service as BS, I decided to try it anyway out of desperation when setting up my own investment partnership with QOF questions. Color me shocked - it actually worked exactly as described. Got connected to an IRS business entity specialist in about 35 minutes (while I was in meetings, not wasting my day on hold). The agent confirmed that my single-member LLC with S election would qualify as a non-disregarded entity for QOF purposes. They also pointed me to some updated guidance I hadn't seen that clarified some of the substantially improved property requirements that were relevant to my situation. I've never been happier to be wrong about something. Saved me hours of frustration and got me definitive answers.

Just to offer an alternative perspective - have you considered using a blocker entity structure? Instead of dealing with the S-corp election, you could set up a two-tier structure where you own 100% of a holding company, which then owns 100% of the QOF. The holding company prevents the QOF from being disregarded, even if both are single-member LLCs. This might give you more flexibility than the S-corp route, especially if you're planning to bring in investors later. The S-corp has ownership restrictions that could limit your funding options.

Has anyone dealt with self-certification of a QOF using Form 8996? I set up an LLC taxed as an S-corp for my QOF last year, and the form itself is pretty straightforward, but I ran into a few weird issues with the timing requirements for the 90% asset test that weren't clear from the instructions.

Great discussion everyone! I'm also working on a QOF structure and want to add one important consideration that hasn't been mentioned yet. When you elect S-corp taxation for your single-member LLC, you'll need to run payroll for yourself as the sole owner-employee, which adds ongoing compliance costs and complexity. The IRS requires S-corp owners who work in the business to take "reasonable compensation" as W-2 wages before taking distributions. This means you'll need to set up payroll, withhold employment taxes, and file quarterly payroll returns. For a QOF where you might have irregular cash flows especially in the early years, this can be challenging to manage. Just something to factor into your decision-making process along with the tax benefits. The LLC with S-corp election definitely solves the disregarded entity issue, but make sure you're prepared for the additional administrative burden.