Don’t Disregard Me: Purchase and Sale of Disregarded Entities

A business entity that is treated as a disregarded entity for tax purposes is generally ignored for U.S. federal income tax purposes even though it is a separate legal entity for state law purposes. While disregarded entities offer significant advantages to the efficient creation and operation of a business, they bring with them a variety of additional tax considerations on their purchase or sale. For example, an owner of a disregarded entity is considered to own the assets. The purchase or sale of a disregarded entity is normally treated as an asset sale for U.S. federal income tax purposes even though for corporate law purposes it is treated as a sale of equity interests in the target company. 

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