Disregarded Entities

Bad news for entities that are disregarded for federal tax purposes:
Owners must be bankrupt or insolvent to exclude income from waived debts,
proposed IRS rules say. Some solvent taxpayers claimed they could use the exclusion
if their disregarded entities were under water. The regulations reject that argument.
A disregarded entity is a business that elects not to be taxed as a separate entity,
such as a one-member LLC. Instead, income or loss is reported on the owner’s return.