Originally published in Business Entities, July/August 2009. Reprinted with permission of Thomson Reuters/RIA. DISREGARDED ENTITIES Disregarded Entities: To Be Or Not To Be? Exceptions to the general rule that a disregarded entity is treated as a -tax nothing" for tax purposes have burgeoned over the last several years. Author: BRAD A. BIRMINGHAM and JAMES M. BANDOBLU, JR. Brad A. Birmingham is a tax partner practicing in the Buffalo, New York, office of the law firm Hodgson Russ LLP. James M Bandoblu, Jr. is a tax associate in the same office. As practitioners regularly use disregarded entities (DREs) in estate, corporate, and tax planning, it is very important that they consider during the course of planning the growing number of instances in which DREs are considered to exist, in whole or in part, for tax purposes. Various provisions of the Code and regulations confer "disregarded" status on an entity. This article briefly describes the four most common forms of DREs and their origins and outlines some of the more significant—but often overlooked—exceptions and modifications to the general rule that DREs are treated as "tax nothings." Because the forms of DREs originate in different statutory and regulatory provisions, some of the exceptions and modifications are specific to only certain forms of DREs, others apply to all forms of DREs, and some are unique to grantor trusts. Practitioners should be attentive to this growing class of exceptions and modifications when tax planning for their clients. Types of Disregarded Entities The discussion below gives a general overview of four of the more frequently used types of DREs and their legislative creation, but there are also other miscellaneous DREs that arise primarily through the combined use of one DRE. For example, a partnership between a taxpayer and a DRE that is wholly-owned by the taxpayer does not constitute a partnership for federal tax purposes; rather, the partnership is a DRE, ab