Wrong tax entity classification for new business

[frankie123]

Question 1- Have a client that had a firm file for his federal ID number (not me) and he ended up, because of information from them, was given P/S status. This was not his wish but due to the time involved we had to file a 1065 for the last 6 months 2018. Checked the box "initial return". He does not want to be a P/S but keep the name & LLC status. I was wonder which would be the safest way to do this. 1. is it possible to file an amended return and also check the box final return or 2 file form 8832 to elect one owner status thereby filing his rental properties with his personal 1040 & Sch E. There was no 8832 filed to be taxed as P/S

Question 2 - If we do either of these would he have to start all over refile with the state of SC to become a new LLC and get new ID number. Or can we just pick up on the 2019 return using same number and name. As far as the LLC status goes I don't feel it is in danger as far as I know it has nothing to do with federal plus the Articles of Organization list only him so how who ever did this came up with P/S I have no idea.
Thanks in advance for any input on this. F. Hendrix

[Uncle Sam]

What type of entity was checked off on the SS-4 submitted to IRS?
The Entity Control Unit does not have a telephone contact number but does have a fax #, where you could provide an explanation as to the problem and ask that you be given guidance on proper procedure.
Depending upon where taxpayer lives fax # is different - East states 877-640-7312, West states 855-214-7520

[frankie123]

I don't have copy of the SS-4 will see if he has a copy of it, but I am thinking it had to be P/S which would have been a break down in communication. Will see if he has a copy but I really doubt it as he brought me all the other paper work. Thank you so much

[Anarchrist]

Are there partners or is this a SMLLC? If SM, how did you file a partnership return w/o partners?

[TaxGuyBill]

Just saying it is a Partnership when applying for an EIN does not make it a Partnership.

As was asked, is this a multi-member LLC? If not, you just need to notify the IRS that the EIN does NOT belong to a Partnership.

What type of taxation was intended?

[Burke]

Question 1- Have a client that had a firm file for his federal ID number (not me) and he ended up, because of information from them, was given P/S status. He

What firm? He had to sign the form supposedly, and should have been given a copy. And they should have a copy too.

[ATSMAN]

Couple of years back I took over a case where the previous tax preparer had filed 2 1065 returns indicating that the business was a partnership but it was really a LLC according to articles of organization filed with the state. We amended the open return and filed as LLC going forward. The EIN was not changed and it has been 4 or 5 years since that and no issues.

[frankie123]

Thanks folks for all the information. There is only one person on the Article of Organization as well as only one on the letter from the IRS with his new Federal ID#.. Usually, if memory serves me right, if the documents had 2 name it automatically fall to P/S and when the IRS sends out the letter they will address him as Partner but this letter has MRB (member) in the heading. The main problem, I see here, is (another worm in the mix) when he set the LLC up it was his intention to set up a trust in tax year 2019 & put all the rental properties in it. Having 2 of the houses in a P/S to me will be problematic. I am sure he had to sign both forms but he probably paid no attention to what it said. Just like the letter (CP 575 B) from the IRS states right in the middle he would be filing a 1065 and it would be due 3/15/19. But he waits till 1st of April to bring his stuff in. I ask, "Did you not read this?" of course he said yes figured you would handle it. I was going to file everything on the personal but someone, probably the ones that did the filing in the beginning told him he had no choice he had to file P/S. I didn't agree but did it anyway. Seems to me it could have been fixed with the 8832. I may be wrong here but don't think so. But at then same time since it was already late maybe they were right. Again thanks for everyone's input

[Toobusy]

Question 2 - If we do either of these would he have to start all over refile with the state of SC to become a new LLC and get new ID number. Or can we just pick up on the 2019 return using same number and name. As far as the LLC status goes I don't feel it is in danger as far as I know it has nothing to do with federal plus the Articles of Organization list only him so how who ever did this came up with P/S I have no idea.
Thanks in advance for any input on this. F. Hendrix [/QUOTE]

I had a similar problem. My client setup his LLC without following my instructions. He setup as a LLC, but since it was husband/wife IRS defaulted it to a P/S. When he came to me to do his taxes he informed me that he was an S-Corp. I requested a copy of the notice from IRS based on Form SS-4 that he filed, it stated he must file Form 1065. He still insisted that he was an S-Corp, and the proof that he gave me was a completed unsigned Form 2553. I informed him, that that unsigned form was insufficient, I need to see the Notice from IRS stating that they received Form 2553, etc. He never got it too me, so I went on and filed Form 1065. I also, had a situation few years ago, when MMLLC was assigned by IRS to file Form 1065, but they wanted to be a S-Corp, and since there was no confusion with how they had filed the SS-4 with IRS, I contact IRS and was told to just file Form 1120 -S, and checked the appropriate box "...electing to be an S corporation..." and attached form 2553, and had no problems.

To answer question, no he does not have to start over with the state of SC, the state and IRS are separate. Everything can stay like it is with the state. He only has to change his filing method with IRS. If you got a copy of the Notice from IRS, it will indicate on the third line on the right the Form they based they decision to assign his filing status. If it says Form SS-4, that means when he completed Form SS-4, he entered more than 1 person on lie 8b of Form SS-4. Because if he entered one person, IRS would have told him that he would be taxed as a Corporation. But IRS can change that. You might have to get Power of Attorney and contact IRS and explain the situation, and take it from, but there is nothing you need to do about state of SC filing, nor is a new ID, needed.

[Anarchrist]

The names of the organizers aren't relevant to the number of LLC members. One does not have to be a member to be an organizer and the organizers aren't by default LLC members.

[frankie123]

I am still trying to get a copy of the SS-4 to see how they filled it out, no luck yet left messages as well as emails so I figure that is one that will go in my holding file until he gets around to answering me. Once I get that I will get back on with my question. Thanks to everyone who has answered. I don't know who he had get the number, I am sure it was done on line but he should have been given a copy and I was very surprised when he didn't bring it with all the other documents.

[TaxGuyBill]

Forget the SS-4 for the time being. As I said before, that has nothing to do with whether or not this is a Partnership or not.

Is this a Multi-Member LLC or is it a Single Member LLC?

If it is a Multi-Member LLC, is the only other Partner his spouse? Is this in a Community Property State.

You said he does not want to be taxed as a Partnership. Are you saying you want it to be a "disregarded entity" and just report the rentals on page 1 of Schedule E?

[DaveinTexas]

Just throwing this out there, the CP575 mentions the default tax structure and the tax form the IRS would “expect” to see based on their default determination. The letter goes on to read, “this letter does not serve as a determination of your tax structure”. I am paraphrasing, but the point is, this letter has nothing to do with the tax structure UNLESS your client has not made a tax election.

Even in a community property state, the letter will still state a husband and wife owned LLC will file as a 1065. Again, this has nothing to do with the actual tax structure; this is a letter written by a computer assuming the tax structure until you A) File the first return and/or B) File the appropriate tax election form.

Also, for a husband and wife owned LLC in a community property state, you can still file as one Schedule C and ignore the 1065 reference in the CP575. You may receive a letter down the road from IRS requesting a 1065 to be filed; simply write a letter indicating the LLC is owned wholly by husband and wife in a CP State. Just my two cents.

[frankie123]

TaxGuyBill It is, per the Articles of Organization filed with SOS in SC a one organizer no other name appears in any document that I have. Thanks

[Anarchrist]

TaxGuyBill It is, per the Articles of Organization filed with SOS in SC a one organizer no other name appears in any document that I have. Thanks

It is what? Bill asked if it is a single or multi member LLC. We know it is. We don't know which one it is. Which one is it? The number of organizers is not relevant to the number of LLC members.