USA LLC w/ S Election or Corp w/ S Election?

[mike20770]

we are forming a biz and have been advised to form as an LLC with a subchapter S election for tax purposes.

Since then we signed on an investor who will invest cash in our business in exchange for 25% ownership (silent, limited partner). I am getting conflicting information on whether his investment in our LLC (with S election) is taxable or not. Does anyone know the answer to this?

 

[Marshall]

No. Under Section 1032 of the Code, a corporation (which is what an LLC electing S corporation treatment is considered for tax purposes) does not recognize any gain or loss on the issuance of its securities for cash.