Does anyone have any info regarding "Holding" companies?

[WhiteOleander]

This is a little long.

I have a client with 3 LLC's. LLC A is a "Holding" company. (client's term) It was formed in Aug of this year. It will receive all income created by LLC B and LLC C. It will not have any income from it's own creation. No tax returns have been filed for LLC A yet.

LLC B was formed in 2002 and has been filing a 1065. It has patent rights from an invention. It is hoped that the invention will be sold for big bucks It has had very little income over the years. There are 5 members.

LLC C was formed in Jan of 2008. It also owns the patent rights to another invention. It has the same 5 members as LLC B. No tax returns have been filed for LLC C yet either.

So, here's my question. IF there are 5 members in LLC B and LLC C, the members would each get a K-1 for their respective share of the expenses. Income will supossedly go to LLC A. (right now the LLC's will be filing 1065) So, I have to get the expenses from LLC B and C over to LLC A. If The members % adds up to 100%, how do I get the expense from the LLC B and C to LLC A? I can't use a K-1 because even though the LLC A wholly owns the other two LLC's, the members also have ownership equal to 100%.

Does this make sense to anyone here? An attorney set all this up. But, I can't talk to him until Monday.

I am hoping someone here can point out some glaring thing I am overlooking. This just doesn't make sense to me.

Thanks.

[Corduroy Frog]

Does not Compute

Oleander I agree that something is wrong or else there is a miscommunication somewhere. You have accounted for all the ownership in companies B and C, so how could "A" actually have any ownership?

Let us know if there "elliptical connections" whereby ownership can be something other than it seems.

[fliszt]

This may be not

the same as your situation, but I do financials monthly for a holding company.
The holding company has 6 companies under its umbrella. Monthly there is income and expenses for the holding company. Each of the 6 companies has their own set of books and accountant. So I prepare the "splits" for the HC. Income less expenses = balance. This "balance" is carried over to the next month. The income statement starts with a new monthly "income" and "expenses". Then the previous month is added/subtracted (as the case may be) for a "cummlative" balance. Month 3 thru month 12 is identical. Then for taxes there is a an 1120 prepared. This particular umbrella company is on a calendar yr so January 1 starts the process all over again. December 31 cummlative balance is carried over to January.
What I do is rather simple and straight forward. Does this make sense to you?
Larry

[fliszt]

P. S. Sorry I forgot

to mention that the umbrella company has centralized expenses which are allocated to the 6 companies based on number of employees each of the 6 co has. There are certain expenses that are evenly expensed (such as the umbrella co Office Mgr = salary/benefits divided by 6 and other expenses such as "kitchen" (coffee, rolls) and other (Xerox, telephone, internet, etc) that are allocated by # of employees (in each of the 6 companies) in the Holding Company's Office. Hope this is clear because I'm try to keep the answer short without sacrificing the explanation.
Larry

[WhiteOleander]

Larry this is very similar to what I am talking about. However, do each of your companies under the umbrella complete a tax return? As I understand my situation (so far anyway) each of the LLC's will prepare a 1065. LLC B and LLC C are supposed to move their info to LLC A by way of a K-1. The LLC A will move the info out to the 5 members via a K-1.

But, the problem with this is, that they have each member's percentage set up to equal 100%. There is no way to create a K-1 to move anything to LLC A. If I just move everything via K-1 to the holding LLC A, then the 1065 fails because there isn't more than one partner. The K-1 for LLC A shows 100% ownership. Does this make sense?

MY two individual companies have their own bank account. They pay expenses out of the account. But, it is set up so all the income generated will go into the account for LLC A. So, I don't understand how LLC B and LLC C will have funds to pay expenses.

Also, since each LLC is set up on it's own, if LLC B pays an expense, how can it be taken against the income from LLC A? To me this is like me writing a check to pay an expense for you. Since we are two separate entities, there is no way for either of us to deduct the expense.
So, I'm thinking that everything should be done through the account for LLC A. Then it can be accounted for separately for each LLC. Kind of like what you are doing.

At this point, I am only doing the tax returns (they gave me a disc with the quickbooks already fisnished for this tax year), but I expect to be doing the accounting for them from this point forward. So, I'm working with some info that is not the best form. But, I think I can get everything set up pretty well if I can figure out how to file the tax returns!!!!

the same as your situation, but I do financials monthly for a holding company.
The holding company has 6 companies under its umbrella. Monthly there is income and expenses for the holding company. Each of the 6 companies has their own set of books and accountant. So I prepare the "splits" for the HC. Income less expenses = balance. This "balance" is carried over to the next month. The income statement starts with a new monthly "income" and "expenses". Then the previous month is added/subtracted (as the case may be) for a "cummlative" balance. Month 3 thru month 12 is identical. Then for taxes there is a an 1120 prepared. This particular umbrella company is on a calendar yr so January 1 starts the process all over again. December 31 cummlative balance is carried over to January.
What I do is rather simple and straight forward. Does this make sense to you?
Larry

[fliszt]

Sorry for the delay

in responding to you. I had 3 tax clients show up.

Anyway, in my opinion, you shouldn't have to do any k-1s'. Using your letters company A is holding. Company B & C are income earning. A takes care of all expenses related to B & C as well as receiving income. B & C should have their own accountant. They will prepare their own tax returns. Either corp or individual. Company A is incorporated and will file an 1120. The holding corp I do is on a CASH BASIS. My company A does NOT issue a K-1. All income and expense is cummlative thru out the yr as well as yr end.

Sorry, but I'm a little slow but I don't understand exactly what your problems are. Could you explain a bit more?
Thank you.
Larry

[fliszt]

You may also

reach me at lamdrdd@gmail.com

Larry

[WhiteOleander]

Thanks Larry, I sent you an email.

[Corduroy Frog]

Ownership

Hi Larry -

You are supposed to issue K-1s to owners of the 1065 partnerships. Partnership B and Partnership C have 5 owners apiece which will be receiving K-1s.

However, Oleander is being told that Partnership A is the owner of B and C. But 100% of the ownership of B and C is already accounted for.

That is the crux of the problem.

[JON]

Agree with Frog

You need ownership to be with the umbrella to file one return. It probably could be changed to reflect that. I find it strange the profits are assigned out of the partnership-must be other reasons. Partners will be taxed on the profits.

[fliszt]

yes I understand now the prob.

Corduroy Frog, I agree w/you that if it is a partnership, then k1s will be issued. I was explaining what I do which is not a partnership of 6 companies. Each company has their own set of books, income, expenses and accountant. They "pay" the holding company for services rendered, which is quite a long list. The holding company has a separate P&L, etc as well as a board of directors, president, VP's, etc made up from the 6 seperate companies.
Larry