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Section 301.7701-2(c)(2)(i) of the regulations states that, except as otherwise provided, a business entity that has a single owner and is not a corporation under 301.7701-2(b) is disregarded as an entity separate from its owner (a disregarded entity). However, the regulations also treat a disregarded entity as a corporation for purposes of taxes imposed under subtitle C (employment taxes). This exception to the treatment of disregarded entities does not apply to taxes imposed under subtitle A, including self-employment taxes, and current regulations provide that the owner of a disregarded entity who is treated as a sole proprietor for income tax purposes remains subject to self-employment taxes. 

The current regulations do not explicitly address situations in which the owner of a disregarded entity is a partnership.  Some taxpayers are reading the current regulations, in such situations, to permit the treatment of the individual partners in the partnership that owns the disregarded entity (either directly or through tiered partnerships) as employees of the disregarded entity.

The regulations will address these issues by clarifying that the rule that a disregarded entity is treated as a corporation for employment tax purposes does not alter the self-employment tax treatment of any individuals who are partners in the partnership that owns (including through tiered partnerships) a disregarded entity.  The partners are not treated as employees of the disregarded entity, but rather are subject to the same self-employment tax rules as partners in a partnership that does not own a disregarded entity.