This article, written by Tennessee attorney Alexander Davie, is a good primer on the different federal tax treatment available to members of a limited liability company (LLC).  For many new businesses, "pass-through" taxation can be desirable, but as you can tell from the article there are circumstances that justify different tax treatment.  If you are looking to start or acquire a business, consult with a lawyer and a CPA or tax professional to determine what tax treatment is best for you.