Information Release

CF 1997-01 - IRS "check-the-box" entity selection regulations - August 19, 1997

Recently-promulgated IRS regulations regarding entity selection (often referred to as the "check-the-box" regulations) generally permit unincorporated entities (limited liability companies and partnerships) to choose (elect) whether to be treated for federal income tax purposes as partnerships or as corporations.1 If such unincorporated entities do not affirmatively choose (elect) either form, then the "default" is generally the partnership form.

Under Ohio Revised Code section 5733.01, if an LLC or a partnership with Ohio nexus defaults or chooses to be treated as a partnership for federal income tax purposes, then the entity generally will not be taxed as a corporation for Ohio corporation franchise tax purposes.2 If an LLC chooses to be treated as a corporation for federal income tax purposes, then the LLC will be taxed as a corporation for franchise tax purposes. See ORC section 5733.01. If a partnership chooses to be taxed as a corporation for federal income tax purposes, the partnership will be subject to the Ohio franchise tax for taxable years ending after September 28, 1997.3

If you have any questions regarding this matter, please contact the Income Tax Audit Division at 614-433-7608.

_________________________________
1Corporations, however, cannot choose to be treated other than as corporations (C corporations or S corporations)

2However, if the entity is a one member LLC and if the entity defaults to or chooses the noncorporate tax status, then the entity will be treated either (i) as a division if the LLC's member is a corporation or partnership or (ii) as a sole proprietorship if the LLC's member is an estate or an individual.

3The recently enacted budget bill, Am. Sub. H.B. 215, 122nd General Assembly, amended ORC sections 5733.01(E) and 5733.01(F) to state that if a "for profit" entity is taxed as a corporation for federal income tax purposes, then the entity is treated as a corporation for Ohio franchise tax purposes:

  • "(E) A business trust ANY PERSON, as defined in division (A) of section 1746.01
    5701.01 of the Revised Code, shall be treated as a corporation organized for profit
    for purposes of this chapter.

    (F) A limited liability company formed under Chapter 1705. of the Revised Code
    or under the laws of any other state shall be treated as a corporation
    for purposes
    of this chapter only if the company PERSON is classified for federal income tax
    purposes as an association taxable as a corporation."

Section 222 of the budget bill states that the amendments to ORC section 5733.01 take effect "on the ninety-first day after the act is filed with the [Ohio] Secretary of State." The ninety-first day is September 29, 1997.