Changing from Partnership to Single member LLC when they are married

[Boma Osime]

I have a new client that has an LLC Partnership but my understanding was he was the sole owner. I just realized it is actually a partnership by the letter the IRS sent him to file a form 1065. The due date is passed to file partnership and he wants to file it as a single member which is a schedule C. Must we file the form 8832 to change it to a single member with the IRS or can we just go ahead and file the schedule C since this is their first filing and Texas is a Community Property state.

Secondly, a client's AGI last year was $25k Plus, married with 2 children. She is a W2 worker earning about $62k and the husband made a loss of $44k plus in business income last year and this gave them the maximum EIC. I did not file that return. This year being my first year to file their taxes, the Tax payer earned about the same income of $62k, the husband made about $20k plus in business losses and had an AGI of $51k. Because they got the maximum earned income credit last year, the wife is expecting to get the maximum with an AGI of $51k so close to the EIC limits of $53k with 2 children. Does anyone have another explanation for this situation.

[Anarchrist]

If the irs letter was a response to filing a SS-4, it isn't relevant.

[spanel]

I have a new client that has an LLC Partnership but my understanding was he was the sole owner. I just realized it is actually a partnership by the letter the IRS sent him to file a form 1065. The due date is passed to file partnership and he wants to file it as a single member which is a schedule C. Must we file the form 8832 to change it to a single member with the IRS or can we just go ahead and file the schedule C since this is their first filing and Texas is a Community Property state.

Secondly, a client's AGI last year was $25k Plus, married with 2 children. She is a W2 worker earning about $62k and the husband made a loss of $44k plus in business income last year and this gave them the maximum EIC. I did not file that return. This year being my first year to file their taxes, the Tax payer earned about the same income of $62k, the husband made about $20k plus in business losses and had an AGI of $51k. Because they got the maximum earned income credit last year, the wife is expecting to get the maximum with an AGI of $51k so close to the EIC limits of $53k with 2 children. Does anyone have another explanation for this situation.

Show the spouse the EIC tables....

Chris

[Boma Osime]

If the irs letter was a response to filing a SS-4, it isn't relevant.

Thank you for the above response. To be clear, does it mean that we can file the client's first return as a single member sole proprietorship business SCH C with out filing the form 8832 to the IRS to change the filing status?

[Boma Osime]

Chris, the Table shows the maximum for Married filing jointly with 2 children and an AGI income of $53,330 is $5920. Their AGI currently is $51k plus. And they are getting about $350 in EIC they are asking why?

[spanel]

Chris, the Table shows the maximum for Married filing jointly with 2 children and an AGI income of $53,330 is $5920. Their AGI currently is $51k plus. And they are getting about $350 in EIC they are asking why?

TTB page 2-22. Maximum EIC for MFJ ends at 25250

[Anarchrist]

I'm not following your original post. I think the numbers are:

2019

$ 62K W2
$-44K business loss
--------
$ 18K AGI which would give them an EIC of $5828, the maximum amount for MFJ w/ 2 kids.


2020

$ 62K W2
$-20K business loss
--------
$ 42K AGI

You state their AGI is $51K and the EIC is around $350. At $51,700, the EIC is $349, so I'm guessing the $42K figure isn't correct.

Last year they were given a welfare payment of $5828. This year their income went up, thus they were only eligible for a welfare payment of $349. As Chris said, show them the EIC tables.


If the man is a sole proprietor and is operating a SMLLC and erroneously checked partnership on the SS-4, then no, he doesn't need to file a 8832. If he gets a letter asking for a 1065, write back stating the partnership box was checked by mistake.

[Boma Osime]

Okay, thank you all so much, I appreciate your help. Will continue to educate them.

[Lion]

How many years has he had large losses? Might be time to educate him re profit motive.

[Boma Osime]

Working on that with him right now. This is my first year with this client.

[New York Enrolled Agent]

Working on that with him right now. This is my first year with this client.

Texas is a community property state - thus Rev Proc 2002-69 can apply and your worries about the Form 1065 might go away. Review the procedure and you may be able to treat the H/W LLC as a disregarded entity and solve your 1065 IRS inquiry. Always difficult to answer without all facts.