LLC as a Partnership

[jcdt]

I have a new LLC with more than one member. They organized in 2015 but are not opening for business until Feb 1, 2016. I do not need to file a 1065 for 2015, yes? My only concern is she did some pre sale packages. Can I include that in 2016 as other income? It will not be realized until they actually open.

[DaveinTexas]

Maybe....

Generally, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes. Entities formed as LLCs that are classified as partnerships for federal income tax purposes must file Form 1065 (Code Sec. 6031(a); Reg. Sec. 1.6031(a)-1(a)).

This, by the way, is on a year by year basis; not just the initial year. The IRS doesn't know that so they will hit up the client with a FTF penalty (guilty until proven innocent).

I would say since the Partnership at least incurred the expense to form the company (expenditure treated as a deduction), there would be a requirement to file a 2015 return. If not, how would you handle the Organizational Expenses paid in 2015?

Just so you know (probably not the case in this situation), if you at first list the start date on the EIN application as say, 12/2015, you can later change this by writing the IRS a letter to move the start date to 2016. This way the IRS won't send your client a nasty gram for not filing a 2015 return.

Here's the rest of the story:
Section 1.6031(a)-1(3)(i)Return of partnership income.

(3) Special rule.

(i) A partnership that has no income, deductions, or credits for federal income tax purposes for a taxable year is not required to file a partnership return for that year.

[KC-CPA]

Partnership required to file - Practical Matters

Just had a client bring information for their LLC (two member) for 2016.

They formed the LLC in 2016, had services provided of $220 and expenses of $1500... they provide counseling services and provided one customer counseling for a fee of $220. Given the penalty's associated with late filing and the very limited activity seems like a lot to file a partnership return but according to what I read if they have income then they are required. any ideas to help them not have to file? I have none but maybe you do ? something I am not considering?

Thanks.

[Roland Slugg]

This is in response to Roger N's post on 6/30/2017. (Roger, it is better to start a new thread for a new matter rather than post a "reply" to an old thread.)

There is no provision that allows a partnership to not file a return just because its income is very little. $220 is enough to trigger the filing requirement ... in fact even $1 is enough.

If the p'ship did not file an extension, its 2016 return will be late, so there is the potential for a late filing penalty. The penalty is stiff ... currently $195 per partner per month up to a maximum of 12 months. (Code §6698(a) and (b))

For domestic p'ships with 10 or fewer partners, however, there is an exception to the penalty as long as all the partners filed their own tax returns on time and reported their respective shares of p'ship income or loss thereon. See Rev. Proc. 84-35.

[TAXNJ]

Just had a client bring information for their LLC (two member) for 2016.

They formed the LLC in 2016, had services provided of $220 and expenses of $1500... they provide counseling services and provided one customer counseling for a fee of $220. Given the penalty's associated with late filing and the very limited activity seems like a lot to file a partnership return but according to what I read if they have income then they are required. any ideas to help them not have to file? I have none but maybe you do ? something I am not considering?

Thanks.

Impressed that you did research and found this prior post similar to your scenario. Reread DaveinTexas reply post which seems to apply to your scenario.

[DaveinTexas]

To add to Roland's post

The 84-35 RP is a great get out of jail free card but if you find your clients did not all file timely returns (no extension filed; filed late) then your last two remedies are the First Time Abatement option (Google FTA, IRS) or just simply reasonable cause, which is a valid option if this is their first experience with a Partnership structure.

Also, I had a client structure a large (over $10MM) 1031 Exchange last year. I urged them to go to a more competent preparer as I know my limitations and 1031s of that size are not in my wheelhouse. The preparer of the entity return; someone well versed in tax law, was not aware of the change in due dates from April to March this year for Partnerships. This is another form of reasonable cause if the Rev Proc is not available to your clients and you don't want to use up the FTA.

I had a handful of clients get tripped up on this one, mostly new clients.