taxbrewster Posted March 24, 2009 Report Share Posted March 24, 2009 Ok, I received a new client today from a referral, but "red flags" started 5 mins into our conversation. Your thoughts are welcome. T/P purchased Restaurant/Bar in Jan 08...The accountant doing the previous owners books, continued to do T/P books for 1 month (jan). They had a huge falling out. Big mess. T/P did most accounting on there own. However, T/P noted that there is an S-Corp (bar business) and a LLC that the bar rents the land/building from. There is no trace of the LLC ever being opened, but rent is paid on the books. S-Corp is legit. I am assuming there is no LLC, and no rent expense.(I think T/P was just going off, 1 month of the profit/loss created by the other accountant). But here are my questions. ---Found the answers to my depre. question. Now... I guess the main question is if the LLC does not have an EIN now, can i apply for one now and have it work for 2008? I know I don't want the building in the S Corp, just wondering how to fix this problem. Quote Link to comment Share on other sites More sharing options...
imjulier Posted March 25, 2009 Report Share Posted March 25, 2009 This is a good question and I have a similar situation so maybe someone else knows something. My thought is to apply for LLC now as you said and use it for 2008 as you don't want to go depreciating in one type of entity for a year and then transfer it to another entity. I think this is called substance over form. Anyone else with comments? Julie Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 25, 2009 Report Share Posted March 25, 2009 Why can't the S-corp pay rent to the individual as property owner? Quote Link to comment Share on other sites More sharing options...
taxbrewster Posted March 25, 2009 Author Report Share Posted March 25, 2009 I believe the building's title is in the LLC's name (still checking) It was created with the State of MI, but again, can I now go back get an EIN? It really is a mess and I am not sure I am going to take them on as a client...I am starting to see holes in the book keeping. Hole 1 - I don't think rent was paid during the year of 2008, however, it is on the books. The old accountant said that is the way the old owners did it and continued the process...So, whats my next move... If the bldg is titled in the LLC name, but no rent is paid? What happens. There can't be any depreciation? Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted March 25, 2009 Report Share Posted March 25, 2009 >>>The old accountant said that is the way the old owners did it and continued the process<<< This statement in and of itself bothers me. Do owners get the right to tell the accountant how to keep the books? I understand your apprehension and would proceed very cautiously. Can you look on the Michigan Secretary of State website to see if the LLC exists? In NC the LLC would be required to file an annual report which would be public information in NC. Does Michigan have the same requirement? I can't answer your question about the EIN either as I have never come across this type of situation. Be careful with this one. Terry D. Quote Link to comment Share on other sites More sharing options...
taxbrewster Posted March 25, 2009 Author Report Share Posted March 25, 2009 It bothers me as well... Yes, I found it on the state of MI web site, so it has been set up with the state, but still no info about the EIN... I feel like the problem is fixable once i get over a couple of hurdles, the clients are nice and it will be a nice fee, I hate to turn away business, but they just have no freakin clue... Quote Link to comment Share on other sites More sharing options...
Bart Posted March 25, 2009 Report Share Posted March 25, 2009 they just have no freakin clue... They are nice. You like them. It will be a nice fee. If they have no clue then educate them (after tax season) and enjoy a great client. Quote Link to comment Share on other sites More sharing options...
imjulier Posted March 26, 2009 Report Share Posted March 26, 2009 Hmmmm... with a little more thought on this one these are my new thoughts. Is LLC single member? If not, pship return and EIN becomes an issue. If so, wouldn't the rental be recorded as a disregarded entity with rental income and expenses simply recorded on the individual return and rent expense (the monthly rent) recorded on the books of the s-corp? This would actually make it rather simple. Julie Quote Link to comment Share on other sites More sharing options...
taxbrewster Posted March 26, 2009 Author Report Share Posted March 26, 2009 Well the LLC is registered under a business name, however, you don't have to list the members in the state of Michigan...That again is the problem. No EIN, no way to tell if it is a single member or not. Bart is right, it is something that we need to be corrected after tax season. Quote Link to comment Share on other sites More sharing options...
taxbrewster Posted March 26, 2009 Author Report Share Posted March 26, 2009 UPDATE - The LLC purchased the building and the assets of the bar. 2 members of the LLC. Turns out the "rent" being paid but it is rent paid on a land contract to the previous owner, paid from the S Corp. That is fine. So, question is still there. What do with the LLC(partnership) with no EIN and all these assets? And why are the assets on the S CORP's balance sheet? When the LLC purchased them? Quote Link to comment Share on other sites More sharing options...
imjulier Posted March 26, 2009 Report Share Posted March 26, 2009 Did the LLC replace the S-corp....meaning the s-corp is the previous owners' and the LLC the current owners? How about just filing on the iRS website for an EIN for the LLC if you don't think one exists? Also, do the new owners want to be an S-corp....its not too late for the LLC to elect S corp treatment. It sounds like you should really be having a sit-down conversation with the owners to truely understand what is going on and what needs to happen. Julie Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 26, 2009 Report Share Posted March 26, 2009 You want the building owned by an LLC that is NOT taxed as a corporation, even an S, or owned by the two individuals splitting income and expenses. So, you need to know which your clients think they are. As has been suggested, you can get an EIN immediately on-line if they don't have one. Put them on extension! Quote Link to comment Share on other sites More sharing options...
taxbrewster Posted March 26, 2009 Author Report Share Posted March 26, 2009 Yes, of course, I know I wanted the bldg in the LLC and it is, so I can just get the EIN and use it for 2008? If so, half my problems are solved. Thanks for the input!!! RE: Julie's answer, no the s corp and LLC were new and created before the sale...but yes a LONG conversation is need, no doubt. Thanks again! Quote Link to comment Share on other sites More sharing options...
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