partnership %'s

[oceanlovin'ea]

New client formed an LLC and did not opt to be taxed as s corp. He added his wife to the LLC for legal purposes. He does general construction work. She does office work. But for legal purposes if something happened to him, she would be able to access funds, etc.

They can chose to do Schedule C for each of them instead of doing a partnership return, if I have read correctly in the tax book under partnerships.

Do they have to be equal partners? Can we give him 99% of business and her 1%?

Linda

[ChEAr$]

New client formed an LLC and did not opt to be taxed as s corp. He added his wife to the LLC for legal purposes. He does general construction work. She does office work. But for legal purposes if something happened to him, she would be able to access funds, etc.

They can chose to do Schedule C for each of them instead of doing a partnership return, if I have read correctly in the tax book under partnerships.

Do they have to be equal partners? Can we give him 99% of business and her 1%?

Linda

First of all, look to the Operating Agreement which spells out capital contributions, and
thereby gives you information as to profit sharing and/or loss sharing. (these two need
not be the same btw). IOW, you can't "give" him anything. And I hope you have a copy of the Operating agreement for your files.

IRS treats such an LLC not opting otherwise as a partnership and a 1065 is required.
Remember, an LLC is created by state law and state law says nothing about an LLC
being like a partnership. You might want to check with IRS on this point, but it stands to reason, since IRS allows a husband and wife operating a simple business to be taxed as a joint venture, i.e. 2 schedule c's. this does not extend to an LLC.

If you're referring to the paragraph on "husband/wfie partnerships" on page 20-3 of TTB, I see why you thought that. But also see page 20-14 which probably says it better what
I just said above.

[oceanlovin'ea]

Wife's contribution was zero.

[Gretel]

I agree with Harlan. 1065 is required.

If wife hasn't contributed anything, her share could be gifted to her or maybe the puts some hours in.

[taxea]

First I wouldn't assume she didn't contribute any capital to the business especially if they are in a community property state. Either way it is their decision to make as to % of business.
I am also willing to bet there is no partnership agreement. So many people go into small businesses without researching the proper documents that should be created.

[ChEAr$]

First I wouldn't assume she didn't contribute any capital to the business especially if they are in a community property state. Either way it is their decision to make as to % of business.
I am also willing to bet there is no partnership agreement. So many people go into small businesses without researching the proper documents that should be created.

Good thing that Florida is not a community property state then.

Of course there is no partnership agreement; it is an LLC and there will be an Operating Agreement as required by state law.

[oceanlovin'ea]

There is no written partnership agreement. But I do believe there is an operating statement.
She did not contribute anything to the business.
He only put her on the LLC at the last minute thinking about legal issues if he were to die or be disabled and not be able to access funds in business accounts.

There was never a thought of her actually being part of the business. He paid a lawyer $500 to set up this LLC for him. You would have thought the lawyer would have explained this to him. This gentlemen is Romanian and has lived in Canada. He says United States makes things so complicated. It drives him nuts.

If it is an LLC with 2 members, then I would have to do a 1065 or partnership return. Am I correct in my thinking? I would give him 99% of the business and her 1%.

Linda

[JG EA]

Partnership agreements can be verbal. No requirement to be in writting. I'm not saying it is best but just doesn't have to be.

[Lion]

Let him tell you

Let your client tell you how much he gave his wife. He should tell you their operating agreement if it is not in writing. In CT, they would file an organizational statement with the secretary of state, but it has very little required to be in writing. The lawyer would've written up a boilerplate organizational statement appropriate for their state and maybe a separate operating agreement. You'll want a copy. And, for all the missing things, such as her percentage of capital, gains, and losses, ask your clients.

[taxea]

Good thing that Florida is not a community property state then.

and there will be an Operating Agreement as required by state law.

Semantics...you all knew what I meant

[ChEAr$]

Semantics...you all knew what I meant

No, I didn't know what you meant. Let's be clear about it. An LLC has to have an
Operating agreement while a partnership "should" have a written partnership agreement, although not required by some state laws.

[ChEAr$]

Let your client tell you how much he gave his wife. He should tell you their operating agreement if it is not in writing. In CT, they would file an organizational statement with the secretary of state, but it has very little required to be in writing. The lawyer would've written up a boilerplate organizational statement appropriate for their state and maybe a separate operating agreement. You'll want a copy. And, for all the missing things, such as her percentage of capital, gains, and losses, ask your clients.

Righto, Lion. And if the operating agreement does not specify, she doesn't even
get 1%.