Late filing penalty for llc/partnership

[Harvey Lucas]

My client became a 25% member in a LLC taxed as a partnership in January of 2013.

The business operated for only a few months and it was decided it was not profitable and so they closed the business.

My client was not the "Tax Matters Partner", ie, one of the other members applied for and received the EIN by filing the SS4 form.

We have a copy of the letter from IRS issuing the EIN with the LLC name on it and one of the other members as the responsible party.

A 1065 return needs to be filed but the responsible party turned out to be irresponsible and did not take care of the 1065 filing.

The business is closed and there are no assets, all the money put into the business was lost on operations.

The penalties for late filing a 1065 are now very high!!

I am thinking we need to file the 1065 to stop the running of late filing penalties (no extension was filed by the irresponsible member/partner.

Will IRS pursue each member/partner of the entity for the late filing fee's since there are no assets left in the entity?

Does my client have a lessor liability for the penalties since he is a minority member?

Harvey Lucas

[Roland Slugg]

The penalties for late filing a 1065 are now very high!

Yes, they sure are. The penalty, imposed by Code §6698, is now $195 per partner per month, up to a maximum of 12 months. It's one of the most punitive penalties in the IRC, especially for a pretty harmless infraction.

The partnership might qualify for abatement of the penalty under Rev Proc 84-35, so you may wish to take a look at that. However, since your client was not the "responsible" partner, there is probably little he can do anyway.

Fortunately. the penalty proscribed by Code §6698 is to be assessed against the partnership. So if the partnership is dissolved, and there are no assets left, there is little the IRS can do. I don't believe it would attempt to come after the individual partners ... maybe just the TMP, but I don't think even that is likely.

Your client, however, probably has a loss that can and should be reported on his own 2013 return, and if I were preparing his return, I would attempt to determine the amount of that loss. Good luck.

[ATSMAN]

One of my new clients received notice 162 from IRS demanding a full year's penalty for late filing of form 1065. The tax partner is a veteran who was deployed overseas in a combat zone. This is a 2 member LLC taxed as partnership. K1 of form 1040 was filed.

Wrote a response back to IRS explaining the circumstance and citing the rev. proc. Now awaiting IRS response.

[Harvey Lucas]

The Tax Matters Partner will not cooperate in filing a 1065

If my client takes the matters into his own hands and prepares and files the 1065 my hunch is that would make him the tax matters partner and subject him to more liabilty than he would have if he were to simply do nothing.

The problem of course is how to write off the loss he suffered, probably about $10,000..

I suppose i could put it on a schedule d and indicate loss from worthless investment.

Any other idea's?

Thanks,

Harvey Lucas

[Bees Knees]

You could use Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, report the actual K-1 amounts as zero on the 8082 (since your tax matters partner refuses to file a partnership return) and then report what you think your partner's actual K-1 amounts should be on the 8082. Then use those amounts for the Schedule E and 1040.

[TXEA]

I think Bees Knees has the solution. This would get your client in compliance and leave the non-reporting to the TMP.

[Harvey Lucas]

Thanks Bee's, Thanks TXEA

[Roland Slugg]

Bees Knees is correct. See item 2. under "Who Must File" in the instructions for F-8082.