LLC Classifiction

[Naveen Mohan from New York]

I have a client who formed a LLC in New York State in August 2018 for the purpose of owning a commercial property and IRS as part of issuing an EIN by default assigned it as a partnership. However there is only one member in this LLC and no body did anything to inform IRS that it is a disregarded entity.

This is the first year for this LLC. Can I simply file a schedule E or do I have to do anything different to advise IRS that it is a disregarded entity and not really a partnership.

Thanks for your help.

Naveen Mohan 

[ILLMAS]

I believe the IRS automatically classify it as a partnership, however it’s considered a disgarded entity when it has a single member, so Sch E should be fine.  But can also be called a joint venture if it’s owned by a husband and wife.

Spouses as Joint Venture LLC Owners

 

The IRS tax code provides that an unincorporated business may also qualify as a joint venture LLC if it conducts a trade or business in which the only members are a husband and wife who file a joint tax return, both spouses materially contribute to the trade or business and both spouses elect not to be treated as a partnership. Ordinarily, the qualification allows married owners to file tax returns not as a partnership but as joint sole proprietors, where both are entitled to Social Security benefits and credits. However, if the joint venture is incorporated as a legal entity -- such as an LLC -- under state law, the IRS qualification is not allowed and the venture is treated as a partnership unless the married joint venture owners live in a community property state. In this case, the entity is disregarded and no partnership tax return is required.