Failed LLC

[Jill Graff]

Situation: 3 taxpayers formed an LLC (electing to be taxed as an S Corp) in 2007. The business was to provide hospice services at patient's homes. Between the licensing requirements (including having to provide services for a year, but being unable to charge for them) and the economy, 2 members dropped out. The remaining member has finally decided to throw in the towel and disolved the LLC with the state. Over the years she has pumped money into the LLC for an office, phone service, legal fees, etc. There were never any employees and the business never "started". No return was ever filed, but meticulous accounting records were kept. There never were any losses or gains, only capitalization of start-up and organization costs.

Question: How to handle the money the member put into the LLC? She paid $507 for the stock, so I assume that is just a long-term capital loss on the stock. The question is how to handle all of the money she put in that was capitalized as start-up and Organization costs?

Any help would be greatly appreciated.

[erchess]

4797

Why does she not get to claim a F 4797 ordinary loss equal to what she put into the effort? Would things be different if the entity were an S Corp with the State instead of a LLC electing to be taxed as an S Corp?

[JohnH]

This situation is one of the numerous reasons I'm not crazy about LLC's and have never jumped on that bandwagon.

[erchess]

Just Noticed no returns filed

The returns are delinquent and must be filed. They sound like they would be zero activity returns and I don't know whether the penalties cal all be waived. I am under the impression that they don't actually have to be paid by the owner unless there is a future desire to own or be a major player in another small business.

[Gretel]

Why does she not get to claim a F 4797 ordinary loss equal to what she put into the effort? Would things be different if the entity were an S Corp with the State instead of a LLC electing to be taxed as an S Corp?

As far as filing the Federal tax return and getting the benefits there should be no difference if LLC electing Corporation status or being a Corporation outright. The differences mainly have to do with liability unless