SMLLC only income from 3-LLCs that file 1065.

[Jill Graff]

Client has single member LLC #1. LLC#1 is set up to own interest in 3 other LLC that are constructing hotels in the fraking areas and filing 1065s. Generally, single member LLCs file a Schedule C or a Schedule E, page 1. During the construction there is no income, just small losses. Do I just report the pass-thru info on Sch E, page 2, just like a regular partnership interest?

Thanks in advance.

[TAXNJ]

Curious

Client has single member LLC #1. LLC#1 is set up to own interest in 3 other LLC that are constructing hotels in the fraking areas and filing 1065s. Generally, single member LLCs file a Schedule C or a Schedule E, page 1. During the construction there is no income, just small losses. Do I just report the pass-thru info on Sch E, page 2, just like a regular partnership interest?

Thanks in advance.

This is interesting. Kinda like Parent & Subs & Brother & Sister corps.

Curious. How & why did the client set up the tax entities you list without knowing the tax effects of the pass-thru, etc?

You would think when planning in creating the entities it was discussed as to the tax benefits of such tax entities or am I missing something?

Also, is this a new client and has the client been in business for years?

[Golden Rocket]

What kind of Entity?

What kind of Entity is LLC #1 (the parent)? You can't expect any of us to know how to report unless we know
what kind of entity. There are several potential answers.

LLC#1 needs a primary function. Has this been set up to protect the owner, and is nothing more than a pass-through
for the three other sources? If so, there is a lot of redundant tax filing for you (and revenue as well), and the
probability that the LLC will be paying taxes, perhaps unnecessarily so - especially at the state level.

[Gary2]

What kind of Entity is LLC #1 (the parent)? You can't expect any of us to know how to report unless we know
what kind of entity. There are several potential answers.

LLC#1 needs a primary function. Has this been set up to protect the owner, and is nothing more than a pass-through
for the three other sources? If so, there is a lot of redundant tax filing for you (and revenue as well), and the
probability that the LLC will be paying taxes, perhaps unnecessarily so - especially at the state level.

Huh? What other answer is there besides SMLLC? Do you mean whether it's elected a federal tax treatment other than the default, which is to be disregarded?

I don't see why this has to be complicated. An SMLLC is disregarded for all purposes except employment taxes, unless an election has been made to be treated as a corporation (C or S). Disregarded means disregarded - pretend it doesn't exist. So the K-1s from the subsidiary partnership LLCs are handled as if they were issued in the name of the single member of the parent LLC, i.e., on Sch. E for the most part.

State filings can vary. Of course the parent LLC will have to pay whatever LLC filing fees are required by the state. There seem to be no tax benefits from having this parent LLC, so that may be a needless expense, but perhaps there are legal reasons for setting things up this way.

[TAXNJ]

Now now

Golden Rocket & Gary2. You both have provided good responses with still open questions in your reply posts.

Yes, it may not be complicated, but then again, it may without all the necessary facts as evident in your post.

Since the Original Poster has not replied back to the others in this posting, the Original Poster may have arrived at a conclusion. It would be helpful from the Original Poster to post their conclusion so we all know the results.

Also, it would stop others from guessing about, if any, missing info.

[Jill Graff]

Reporting info on 1040

The client is a long term client of mine, but he said nothing about these LLCs in advance. (What else is new!) My real concern was where to report the flow-thru income and expenses from the 3 LLCs. All three LLCs are building hotels in the fraking fields and file 1065s. My client has set up his single member LLC as a disregarded entity to be the member owing a part of the 3 LLCs. Usually, the income and expenses of a SMLLC show up on a Sch C or Sch E page 1. I had a lapse of confidence reporting the pass-thru items on Sch E, page (as you would a regular partnership K-1), but the more I think about it, I guess that is where it needs to go.

I appreciate all of the input.

[TAXNJ]

Congrats

The client is a long term client of mine, but he said nothing about these LLCs in advance. (What else is new!) My real concern was where to report the flow-thru income and expenses from the 3 LLCs. All three LLCs are building hotels in the fraking fields and file 1065s. My client has set up his single member LLC as a disregarded entity to be the member owing a part of the 3 LLCs. Usually, the income and expenses of a SMLLC show up on a Sch C or Sch E page 1. I had a lapse of confidence reporting the pass-thru items on Sch E, page (as you would a regular partnership K-1), but the more I think about it, I guess that is where it needs to go.

I appreciate all of the input.

With such a sophisticated client, just knew you would reach and handle a decision once thinking and talking it through otherwise your client would probably would have gone somewhere else.

Nice job and interesting post.

[Corduroy Frog]

Huh? What other answer is there besides SMLLC? Do you mean whether it's elected a federal tax treatment other than the default, which is to be disregarded? I don't see why this has to be complicated.

The owner could have set up this parent entity to be either a proprietorship, partnership, C Corp or S corp. The line item to report the income varies depending on which of these has been selected. Just saying it is a "disregarded entity" does not equate the answer to "none of the above". If the owner is 100%, then a partnership is not a factor.

If a partnership or S corporation, then I believe form 8825 to be the vehicle. If a C Corp, then line 6 of the 1120 (although more information may be required). If a proprietorship, then the lines mentioned by the original post would suffice.

[Roland Slugg]

If LLC#1 is a disregarded entity, like you said in your second post, then you do exactly that ... disregard it. All the information on the K-1's received from the other three LLCs should simply be reported on your client's individual tax return in the usual manner.

[Gary2]

The owner could have set up this parent entity to be either a proprietorship, partnership, C Corp or S corp. The line item to report the income varies depending on which of these has been selected. Just saying it is a "disregarded entity" does not equate the answer to "none of the above". If the owner is 100%, then a partnership is not a factor.

"Disregarded entity" does indeed equate to proprietorship.

I think you're confusing "disregarded entity" with "pass-through entity". A disregarded entity is treated as though it doesn't exist. The only way a disregarded LLC might show up on an income tax return is in the business name on Sch. C or taking the state fees and taxes as an expense.

But partnerships, C corps, and S corps are not disregarded. They're required to have their own EIN and to file their own tax returns. True, partnerships and S corps don't pay income tax directly, but that doesn't mean they're disregarded.

See http://www.irs.gov/Businesses/Small-...ty-Company-LLC for how the IRS uses the term disregarded. (And even on that page, there's one sentence that could be interpreted ambiguously, but I think it's made clear a couple of sentences later.)

And lest someone else pick this nit, disregarded SMLLCs are not disregarded for employment tax purposes.

[Corduroy Frog]

What am I missing??

Two of the venerable knowledge fountains have jumped on this, and I'm wondering whether something in my training or knowledge base has gone afowl. (If you're not furm the south, you can spell it "afoul.")

Disregarded entity does NOT mean income is disregarded. It only means the state-created LLC is not recognized and must be supplanted by some other type entity for reporting purposes. Upon creation of the LLC, the creator makes the election on form 8832, or if the election is not made, the IRS assigns an entity by default.

Jill starts this with a SMLLC (single member). The only choice not available for a SMLLC is a partnership because more than one owner is required. Are you guys telling me that the choice of a C Corp or S Corp is not available? I don't know why the owner set up this thing to begin with, but my guess is he wanted another layer of protection. The SMLLC owns shares of three other LLCs, and someone intends (whether wisely or not) for the resulting income to be funneled into the SMLLC. My guess is this thing has its own FEIN number or intends for Jill to apply for one.

If the other LLCs are issuing K-1s to an FEIN number, this will most likely not be the same as the owner's SS#, and some other reporting must be done. Doesn't mean they cannot use the SS#, but whatever purpose is being fulfilled by the SMLLC probably means the owner prefers otherwise.

Is it possible the owner should report earnings on his own C or E? Certainly. Is it conclusive that it be done this way? I don't think so. What am I missing??

[Gary2]

Disregarded entity does NOT mean income is disregarded. It only means the state-created LLC is not recognized and must be supplanted by some other type entity for reporting purposes. Upon creation of the LLC, the creator makes the election on form 8832, or if the election is not made, the IRS assigns an entity by default.

Jill starts this with a SMLLC (single member). The only choice not available for a SMLLC is a partnership because more than one owner is required. Are you guys telling me that the choice of a C Corp or S Corp is not available? I don't know why the owner set up this thing to begin with, but my guess is he wanted another layer of protection. The SMLLC owns shares of three other LLCs, and someone intends (whether wisely or not) for the resulting income to be funneled into the SMLLC. My guess is this thing has its own FEIN number or intends for Jill to apply for one.

Both C Corp and S Corp are available for an SMLLC. But if an SMLLC makes such an election, then it's no longer correct to refer to it as disregarded.

This is strictly about what the word "disregarded" means, and not about what the various reporting options are. "Disregarded" only refers to the case of an SMLLC that uses the default classification, which is to treat it as the same entity as the individual member.