How often can an LLC change it's tax election?

[Zee]

If an LLC initially elects to be treated as a partnership and would like to change the election to be treated as a C Corporation how often can this be done, and what is the process?

[BHoffman]

If an LLC initially elects to be treated as a partnership and would like to change the election to be treated as a C Corporation how often can this be done, and what is the process?

I think multi-member LLCs default to partnerships and no election is made, so you can make an election for the LLC to be taxed as a Corporation using form 8832. Here's a link to the form and destructions:

http://www.irs.gov/pub/irs-pdf/f8832.pdf

[Zee]

I think multi-member LLCs default to partnerships and no election is made, so you can make an election for the LLC to be taxed as a Corporation using form 8832. Here's a link to the form and destructions:

http://www.irs.gov/pub/irs-pdf/f8832.pdf

BHoffman-

Thanks. I've also read that once an election is made to be taxed as a Corporation, it cannot be changed back to a pass-thru entity for 5 years.

Here's the reason I asked the question. I have a client that has a very large loss carryforward from an LLC previously taxed as a partnership (its was a cargo ship). For the past several years, we've received a K-1 (Of course, it was always late).

This year, I asked him to contact the LLC's accountant to ask about the K-1. The explanation was; "no K-1 will be issued since the entity elected to be treated as a Corporation to protect the member's of the LLC from having to pay any tax as a result of the lease".

I have no idea of what "lease" they're talking about. My understanding was the ship was seized for non-payment of port fees of some kind.

So, at this point, I'm wondering how treating the LLC as a Corporation is protecting the member's from taxation. I'd think the losses would simply continue.

Any ideas?

[BHoffman]

BHoffman-

Thanks. I've also read that once an election is made to be taxed as a Corporation, it cannot be changed back to a pass-thru entity for 5 years.

Here's the reason I asked the question. I have a client that has a very large loss carryforward from an LLC previously taxed as a partnership (its was a cargo ship). For the past several years, we've received a K-1 (Of course, it was always late).

This year, I asked him to contact the LLC's accountant to ask about the K-1. The explanation was; "no K-1 will be issued since the entity elected to be treated as a Corporation to protect the member's of the LLC from having to pay any tax as a result of the lease".

I have no idea of what "lease" they're talking about. My understanding was the ship was seized for non-payment of port fees of some kind.

So, at this point, I'm wondering how treating the LLC as a Corporation is protecting the member's from taxation. I'd think the losses would simply continue.

Any ideas?

Sounds like the LLC changed from a pass through entity (partnership) to a non-pass through entitiy (C-Corp). I also have no idea what "lease" they are talking about, but I'll take a wild guess that maybe they defaulted on a lease agreement, maybe it was or will be forgiven and maybe that would trigger a taxable event.

This sounds like a legal issue rather than a tax or accounting problem. If the business return preparer says no K1, then I guess it is what it is.

Regarding the large loss carryforward - is it a Net Operating Loss (NOL) or a Passive Activity Loss (PAL) carryforward?

[Zee]

Sounds like the LLC changed from a pass through entity (partnership) to a non-pass through entitiy (C-Corp). I also have no idea what "lease" they are talking about, but I'll take a wild guess that maybe they defaulted on a lease agreement, maybe it was or will be forgiven and maybe that would trigger a taxable event.

This sounds like a legal issue rather than a tax or accounting problem. If the business return preparer says no K1, then I guess it is what it is.

Regarding the large loss carryforward - is it a Net Operating Loss (NOL) or a Passive Activity Loss (PAL) carryforward?

Well, I learned a "little" more a few moments ago. The ship was leased to a third party, but the lease payments were never received. I suppose the LLC must have elected anticipating a profit from the lease. The Corporate return hasn't been prepared, it's simply on extension and the CPA changed the election at the request of the owners. Unfortunately, for my client, the election will be a detriment since my guess is the LLC will continue to generate losses, I would have liked to see the losses taken to his personal return.

There are also several lawsuits going on. If If were the CPA, they probably wouldn't be my client...too much information isn't being disclosed, etc. But, after talking to the CPA he feels "stuck" since he's been involved since the beginning.

[BHoffman]

Well, I learned a "little" more a few moments ago. The ship was leased to a third party, but the lease payments were never received. I suppose the LLC must have elected anticipating a profit from the lease. The Corporate return hasn't been prepared, it's simply on extension and the CPA changed the election at the request of the owners. Unfortunately, for my client, the election will be a detriment since my guess is the LLC will continue to generate losses, I would have liked to see the losses taken to his personal return.

There are also several lawsuits going on. If If were the CPA, they probably wouldn't be my client...too much information isn't being disclosed, etc. But, after talking to the CPA he feels "stuck" since he's been involved since the beginning.

Sounds like this company is circling the drain and headed for bankruptcy. Just a guess from what you're saying.