In a recent decision, the court rejected the suggestion that the election by a particular LLC, for purposes of the Federal Internal Revenue Code, to be classified as a corporation should impact upon the mechanism by which the citizenship of the LLC is assessed for diversity purposes. In effect, the LLC argued that, having elected to be taxed as a corporation, it should be assessed for diversity purposes as a corporation. This argument was unsuccessful. Fairfield Castings, LLC v Hofmeister, No. 4:15-cv-00059, 2015 WL 4105027 (S.D. Iowa July 2, 2015).
In rejecting the invitation to treat the LLC as a corporation for purposes of diversity jurisdiction, the District Court wrote:
Similarly, Spara's elective decision to be treated as a corporation for tax purposes does not somehow transform its LLC status for purposes of evaluating diversity jurisdiction. The motivations behind a business entity's choice to be taxed in a certain manner have no bearing on the rationale for evaluating the citizenship of each member of an LLC.
Originally published on Kentucky Business Entity Law
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