We have fewer than 100 partners, but one is a disregarded LLC. Can we elect out of centralized partnership audits?
Having fewer than 100 partners does not by itself establish eligibility to elect out of the centralized partnership audit regime.
By AE Tax Advisors Team · Updated October 28, 2026
Having fewer than 100 partners does not by itself establish eligibility to elect out of the centralized partnership audit regime. Partner types and the counting rules matter. A disregarded entity partner generally prevents the election under the applicable eligibility rules, even when its owner would otherwise be an eligible individual.
A specific business-owner situation
A ten-owner partnership admits one owner through a single-member disregarded LLC. The preparer cannot assume the small headcount preserves the annual opt-out election.
Illustrative example, not a client result.
What to establish before filing
- Identify every direct partner's tax classification.
- Apply eligible-partner and counting rules.
- Review the annual election and notification requirements.
Which fact changes the answer?
A direct individual partner differs from a disregarded entity holding the interest. Some S-corporation shareholders also affect the partner count, so headcount alone is insufficient.
A mistake to avoid
Do not look through a disregarded LLC solely to substitute its individual owner for the eligibility test.
Records that support the decision
- Partner ownership and classification records.
- Filed Schedule B-2.
- Partner notification evidence.
The decision to document
Assess eligibility before filing the election and review proposed ownership changes with the partnership preparer.
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Related questions
- Our partnership pays a partner's health premiums. Do we report them like ordinary employee benefits?
- Can our partnership put a member on W-2 payroll through its wholly owned disregarded LLC?
Sources and editorial context
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.