Help!!

[Ken]

I have a client who formed an LLC with his mother.The two of them together have their names on the business. Its an assisted living home.
I have a lot of questions.
The home was purchased by the mother. She and son will run it together. It almost sounds like it should be a partnership but they said they never formed a partnership. The mother was perfectly willing to let the son claim the LLC on his taxes and she just file a regular joint return with her husband.
The problem is the home is in the mothers name.
Okay here it goes and I KNOW I'm gunna get zapped. Could they just split the income and expenses (except for the depreciation of the home) and file two seperate schedule C's? The mother of course would get the depreciation of the house.

Hey! dont scream, Ive seen worse things than that done.

[Gretel]

Ken, I am not screaming, you know already yourself, that this is not the correct way to handle this situation (and have screamed at yourself already).

Who is in the LLC, which was filed with the state? Both of them? Well, then 1065 is required, not buts and Bees who will have to say his share.

If LLC was just in son's name then he could rent the space in his mother's house.

[Black Bart]

Well, of course, it's not accordin' to Hoyle, but

I
Hey! dont scream, Ive seen worse things than that done.

I'm not screamin'. Yeah, I've seen worse things done--even done 'em myself and so have you--but it's one of those tossup things. On the one hand, you think "Will they get checked and be penalized for not makin' a 1065 (you know who the client will be laying that on) and on the other hand "It's just soooo much trouble makin' those darn things." Odds are two "C"s will fly, but who knows how much the new IRS commish is gonna bear down on us? What to do?

If you want an official "blessing" for the no-1065 position, I suggest you plead with Bees Knees to intervene and he'll give you a dozen good reasons why a partnership return is not necessary and maybe even that it could be considered a "joint venture." Suggest you disregard any comments by Armando in case he chimes in (I know what he's gonna say about it).

[Snaggletooth]

Ancient Argument

No screams here, either, Ken. I am very hesitant to file partnerships for a couple of folks who stick their head in the door and say, "well, we're sorta partners." The Schedule C treatment is common for me if the "partnership" has no formal agreement, no articles, no filing with the state, and overwhelming odds that the arrangement will not last long. Black Bart is on my side, with occasional support from that guru of gurus, Bees Knees.

Armando is not similarly inclined. He was spotted last summer bringing a 1065 to a couple of 7-year olds at a lemonade stand. Unfortunately, in your case as you have presented it to us, Armando would be correct.

You tell us that an LLC has been created. That means, as a minimum, the state already knows about this entity and will be expecting a return. It follows that the federal return should complete the tandem.

What I'm not prepared to do is advise which kind of return to file. An LLC could take the form of a partnership, corporation, or even possibly a proprietorship. The ownership status and possible rent arrangements may be considered.

[Snaggletooth]

Ed is on no side

By the way, did I say Black Bart is on my side? I forgot to tell you about Ed.

Ed is on no side.

The sentence above is a palindrome (reads the same forward and backward).
I learned this as a kid watching "Have Gun, Will Travel."

as in {Palindrome, Palindrome, ...where do you ro-am...}


(Geez, sometimes I think I'm losing it...)

[Black Bart]

Well, even if

you're losin' it, congratulations on getting your card. All the best to you.

[Matt Sova]

Partnership

I have a client who formed an LLC with his mother.The two of them together have their names on the business. Its an assisted living home.
I have a lot of questions.
The home was purchased by the mother. She and son will run it together. It almost sounds like it should be a partnership but they said they never formed a partnership. The mother was perfectly willing to let the son claim the LLC on his taxes and she just file a regular joint return with her husband.
The problem is the home is in the mothers name.
Okay here it goes and I KNOW I'm gunna get zapped. Could they just split the income and expenses (except for the depreciation of the home) and file two seperate schedule C's? The mother of course would get the depreciation of the house.

Hey! dont scream, Ive seen worse things than that done.

You answered your question with your first two sentences. This is an LLC taxed as a partnership. Even though they state they never formed a partnership, the fact that they formed the LLC together makes them a partnership.

Mom should QC the property into the LLC or have the LLC rent the property from mom. You also state that mom is willing to let son claim LLC on his taxes. Well, that is fine, just put it in the LLC operating agreement that the son will claim 100% of the profit, loss, credits, etc unless amended at a future date. You STILL file a 1065 with ownership % at 50/50 or whatever and mom's K-1 will have nothing on it, but son's will have everything.

Matt

[Ken]

Llc

Thanks for all the comments guys. Well as it turns out, they didn't really start up the business untill this year. They had some costs incurred in 2005 but the business actually started operations in 2006. I have been told by a CPA friend of mine that different states have different rules regarding LLCs. In Arizona its simply reported on a schedule C just like a sole prop. I still have to decide about the 1065, Ive never done one and I'm not in any hurry to start now.
Thanks for all the advice.
Ken

[Black Bart]

Arizona Armando

I still have to decide about the 1065, Ive never done one and I'm not in any hurry to start now.

Don't worry about a thing, my man. If you do indeed elect to 1065 yourself, then simply post an SOS right here on this board for Armando Beaujolais and he will almost certainly be so grateful for being allowed to participate, that he'll furnish you with reams and reams of information/instructions or, very probably, even volunteer to do it for you himself--and maybe wash your shoelaces to boot.

[Ken]

Don't worry about a thing, my man. If you do indeed elect to 1065 yourself, then simply post an SOS right here on this board for Armando Beaujolais and he will almost certainly be so grateful for being allowed to participate, that he'll furnish you with reams and reams of information/instructions or, very probably, even volunteer to do it for you himself--and maybe wash your shoelaces to boot.

yeah right, Thanks Bart