Legislation adopted in a number of jurisdictions in recent years allows limited liability companies to be divided into separate cells (also known as series or segregated portfolios) with their own assets and creditors. It seems likely that the individual cells would be treated as separate entities for U.S. tax purposes under current law, at least where the assets are passive and the cells are fully separated commercially, but that result is not entirely clear.
On January 16, the IRS issued, for the first time, guidance on protected cell companies, which supports separate-entity tax treatment of cells. The guidance focuses on insurance arrangements but is likely to have significance outside of that area. We have prepared an alert memorandum discussing the new guidance, which is attached. We have also attached a recent article by two Cleary lawyers discussing the tax treatment of segregated portfolio companies under current law.
