Which of the following is incorrect regarding the taxation of an LLC with multiple owners?

An LLC with multiple owners is not always taxed as a sole proprietorship because that classification applies only to single-member LLCs. For an LLC that has more than one owner, the default tax treatment is that of a partnership unless an election is made to be taxed as a corporation.

When there are multiple owners, the IRS allows the LLC to avoid the sole proprietorship classification, as it does not align with the nature of the entity having more than one owner. The ability for the LLC to elect taxation as a partnership reflects its flexibility in tax treatment, thus making the notion that it could be classified as a sole proprietorship incorrect for multi-owner scenarios.

Understanding that the tax implications vary with the number of owners is essential. Sole proprietorship taxation only fits a single-member LLC, while multiple owners must consider partnership or corporate taxation as their default options.