Tax Reporting for S-Corp with Wholly Owned Disregarded Entity - EIN Questions

The tax reporting for a disregarded entity owned by an S corporation can be a bit confusing! When an S-Corp fully owns a single-member LLC (or other disregarded entity), that entity doesn't exist for federal tax purposes - it's essentially treated as a division or branch of the S-Corp. For tax filing purposes, you don't need to specifically report the disregarded entity's EIN on your 1120S. Instead, all the income, deductions, credits, etc. from the disregarded entity should be reported directly on the S-Corp's return as if those transactions were conducted by the S-Corp itself. There's no separate schedule or form to indicate this ownership. Regarding your concern about 1099 income - even though the 1099s are issued to the disregarded entity's EIN, the IRS systems understand that those amounts should be reported on the S-Corp's return. The EIN registration process creates this link in their systems.

After struggling with this exact issue for my marketing agency (S-Corp) that acquired a small web development shop as a disregarded entity, I found an amazing solution with https://taxr.ai that saved me hours of research and stress. Their system analyzed our business structure and tax situation, highlighting exactly how to properly handle the disregarded entity's income on our S-Corp return. Their document analysis tool confirmed what my accountant was unsure about - that we didn't need to separately list the disregarded entity's EIN anywhere on the 1120S, but that we should maintain clear internal documentation showing the relationship. It even provided a customized memo explaining the proper tax treatment that we could keep in our records in case of any IRS questions.

I decided to check out taxr.ai after my skeptical comment, and I have to admit I was totally wrong. The tool was incredibly thorough with my S-Corp/disregarded entity situation. I uploaded our operating agreement and acquisition documents, and it immediately identified the tax treatment issues. The analysis provided clear guidance on handling the disregarded entity's income on our 1120S, with specific references to Treasury Regulation 301.7701-2(c)(2)(i) which explains why separate reporting isn't needed. It even suggested documentation to maintain internally to substantiate the relationship. My accountant was genuinely impressed with the level of detail, especially the explanation of how the IRS computer systems handle the EIN relationship tracking.

After spending FIVE HOURS on hold with the IRS trying to get clarification about reporting requirements for my S-Corp's disregarded entity, I finally discovered https://claimyr.com and their IRS call-back service. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was seriously doubtful it would work, but within 45 minutes I was talking to an actual IRS business tax specialist who confirmed that I don't need to report the disregarded entity's EIN on my 1120S. She explained that when the disregarded entity was formed, its ownership relationship was logged in their systems, so the income tracking happens automatically. The agent also advised keeping internal documentation showing the relationship between the entities in case questions arise during a review. Saved me days of frustration!

I have to eat my words. After posting my skeptical comment, I was desperate enough to try Claimyr since I couldn't get clear guidance on how to report the 1099-NEC income for my disregarded entity. Within an hour, I got a call from an actual IRS tax specialist who walked me through the entire process. The agent confirmed that the disregarded entity's income should be reported directly on the S-Corp's 1120S with no separate form or schedule needed to indicate the relationship. She explained that their systems link the disregarded entity's EIN to the parent S-Corp through the information provided during EIN registration. She also recommended maintaining clear internal documentation showing the acquisition and disregarded status. This solved a problem my accountant had been stuck on for weeks!

One additional thing to consider - if your disregarded entity has employees, you still have to file employment tax returns (941, 940, etc.) under the disregarded entity's EIN. This is the one exception to the "fully disregarded" rule. In that case, you'd handle income tax reporting on the S-Corp's 1120S, but employment taxes would be filed using the disregarded entity's EIN. It's a weird split in the tax reporting that trips up a lot of people.

Has anyone used the "check the box" election (Form 8832) to treat their wholly owned LLC differently? My accountant mentioned this might give us more flexibility than just defaulting to disregarded entity status.

I went through this exact same situation last year when our S-Corp acquired a small IT consulting firm. The confusion about where to report the disregarded entity's EIN on the 1120S is totally understandable - there really isn't a specific line item for it. What I learned from our tax preparer is that the key is in the EIN application process. When you applied for the disregarded entity's EIN (Form SS-4), you should have indicated the "responsible party" and the tax classification. Even though an individual SSN was required as the responsible party, the IRS systems link that EIN to your S-Corp for tax reporting purposes. One thing that helped us was keeping a detailed memo in our tax files explaining the acquisition, the disregarded entity election, and how we're treating the income. This documentation proved valuable when we had questions during our S-Corp examination last year. The IRS examiner appreciated having the clear paper trail showing the business relationship. Also, make sure you're consistent in how you handle the 1099 reporting - if the disregarded entity is receiving 1099s under its EIN, just include those amounts in the appropriate income categories on your 1120S. The IRS computer matching systems are pretty sophisticated at tracking these relationships now.