A Michigan LLC contractor has 3 members. For tax purposes, how will the LLC be treated by default unless an election is made?
Correct Answer
A) As a partnership
A multi-member LLC is treated as a partnership for federal tax purposes by default unless an election is made to be taxed as a corporation.
Why This Is the Correct Answer
A multi-member LLC is classified as a partnership by default under IRS check-the-box regulations (Treasury Reg. 301.7701-3). Because the LLC has 3 members (more than one), it does not qualify as a disregarded entity; instead, it is automatically treated as a partnership for federal — and Michigan state — income tax purposes unless the members affirmatively elect corporate treatment.
Why the Other Options Are Wrong
Option B: As a sole proprietorship
Sole proprietorship treatment applies only to a single-member LLC that has not elected corporate status. With 3 members, the LLC cannot be treated as a disregarded/sole-proprietorship entity.
Option C: As an S-corporation
S-corporation status requires a separate IRS Form 2553 election after first electing to be treated as a corporation. It is never the automatic default for an LLC.
Option D: As a C-corporation
C-corporation treatment also requires an affirmative election (Form 8832). No LLC is automatically taxed as a C-corp by default.
Memory Technique
Think '2+ members = partnership by default.' Just as a general partnership has multiple partners sharing profits, a multi-member LLC mirrors that treatment automatically.
More Michigan Questions
A Michigan contractor forms an S-Corporation. What is the maximum number of shareholders allowed?
A contractor's employee is injured on a job site in Michigan. The contractor's workers' compensation insurance has a $500 deductible per claim. The total medical costs are $12,500 and lost wages are $3,200. What is the contractor's out-of-pocket cost for this claim?
What is the minimum general liability insurance coverage amount required for Michigan residential builders?
Under Michigan Act 299, what is the consequence for a contractor who performs work outside the scope of their license classification?
A contractor discovers that a subcontractor has filed a construction lien against their project. The general contractor believes the lien is invalid. What is the primary legal mechanism to challenge the lien in Michigan?
Under Michigan Act 299, what happens if a contractor continues to work without a valid license after it expires?
Which of the following best describes the 'pay when paid' clause limitation under Michigan law?
A project has total costs of $180,000 including $75,000 labor and $105,000 materials. With workers compensation at 7.8% of labor costs and general liability at 0.4% of total costs, what are the combined insurance costs?
A Michigan contractor is forming an LLC. What is the minimum general liability insurance coverage required for residential builders under Michigan law?
Under Michigan Act 299, a contractor's license must be renewed every:
People Also Study
Business & Financial Management
120 questions · 70% to pass
Contract Administration
60 questions · 70% to pass
Project Management
60 questions · 70% to pass