Question regarding filing a federal tax return for an LLC

Discussion in 'Accounting and Legal Advice' started by mcomp72, Jan 9, 2009.

  1. mcomp72

    mcomp72 New Member

    Hello everyone,

    I became a member of an LLC in 2008, that was created in 2007.

    I am having my accountant handle filing the federal and state tax returns for 2008. The accountant who handled them for 2007 did not file a federal return, and the reason he gave was that since the LLC did not make any money, the IRS considers it a "non-existent entity", and therefore a federal return was unnecessary. What he did instead was create a Schedule C for the LLC for the member with a majority share.

    However, my accountant tells me that this is incorrect, and that even though the LLC did not make any money in 2007, it is still required to file a federal return, and K-1's should have been issued to the 5 partners.

    I am seeking another opinion on this matter. Could anyone with expertise on the matter share their opinion with me? And, if possible, refer me to the proper IRS Code?

    Thanks in advance for any help you can offer.
     
  2. A8ch

    A8ch Gold Member

  3. mcomp72

    mcomp72 New Member

    Thanks. My accountant pointed me to the instructions on Form 1065, which state:

    Limited Liability Company

    A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for federal income tax purposes as a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301.7701-3. See Form 8832, Entity Classification Election, for more details.

    Note: A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes.


    Who Must File

    Domestic Partnerships

    Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.

    Entities formed as LLCs that are classified as partnerships for federal income tax purposes must file Form 1065.


    Because the LLC in question is not a single member LLC, a partnership return to the IRS is required, if I understand this correctly. Would you concur with that?
     
  4. A8ch

    A8ch Gold Member

    mcomp72: Because the LLC in question is not a single member LLC, a partnership return to the IRS is required, if I understand this correctly. Would you concur with that?
    Your accountant is more qualified than I to answer your question, since I have no certifications in tax law or accounting.

    But, to answer your question, I would concur with your statement as written. The exception, however, would be "unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes."

    Hermas
     
  5. Newbie Shield

    Newbie Shield Gold Member

    mcomp72: Because the LLC in question is not a single member LLC, a partnership return to the IRS is required, if I understand this correctly. Would you concur with that?


    Yes.

    ~Newbie Shield~
     
  6. 10YearsPlusWAHM

    10YearsPlusWAHM New Member

    Yes, definitely.

    With an LLC the company makes money, pays the bills, then splits the profits according to the partnership/member-manager agreement. The "manager" makes the decision to pay out the profits according to the plan, or not.

    The individual members are responsible for the taxes on the funds they receive from the LLC. If it is not single member LLC (which is disqualified from certain deductions by the IRS), then each member would receive the appropriate form from the LLC indicating how much of the profits were distributed to them. The IRS also gets a copy, so they log it onto your SSN as earnings they expect to see on your yearly filing.

    I'm not an accountant or a attorney. I have established corporate structures for others.

    10+WAHM
     
  7. annadenise

    annadenise Active Member

    Hi, 10+ WAHM. Since you have set this up before, who do you recommend? I've heard of a co. in Nevada that a lot of online marketer's seem to use, I've had other's tell me their accountant or attorney did it. I've not used an accountant before for taxes but will probably need to for 08 taxes and definitely for 09.

    Another question on the LLC - I was going to do this for my son's who have two separate accounts in Trivita that I may combine into one as an LLC so they can split earnings equally. It would be less work for me to be involved in their position's if there were only one, while they are in college, and one is at a higher level than the other and already earning a 4 figure monthly income, so combining them would be fair so they both make an equal amount.

    Are there any disadvantages to doing the above vs. now where they are both filing tax's individually as being self employed?

    Would there be any real advantage for me to also start an LLC for my own position? I would not combine mine with their's.

    Thanks for any input, or suggestions as to where best to get this handled.
     

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