How does Chesters handle federal income taxes as a limited liability company?

According to Chesters's 2025 Franchise Disclosure Document, as a limited liability company for federal income tax purposes, Chesters has elected under Section 701 of the Internal Revenue Code (IRC) to have its income or loss taxed directly to its members. Because of this election, Chesters is not required to make a provision for income taxes at the company level. This means the individual members of the LLC are responsible for reporting and paying income taxes on their share of the company's profits or losses.

Chesters also assesses its uncertain tax positions for the likelihood that they would be overturned upon examination by the IRS or state taxing authorities. For the years ending December 31, 2024, and 2023, Chesters determined that it did not have any uncertain tax positions that it would be unable to substantiate. Furthermore, Chesters has filed tax returns through 2023.

For a prospective franchisee, this information indicates that Chesters itself does not pay federal income taxes. Instead, the profits and losses are passed through to its members, who then report these on their individual tax returns. This is a common practice for LLCs and S corporations, as it avoids double taxation (where the company pays taxes on its profits, and then the owners pay taxes again when they receive distributions).