Clients have 2 LLC's that are using QuickBooks

[cred65]

LLC 1 is a RE rehaber and is 50% owned by spouse and 50% by son. The company is taxed as Sub S. The company has liability issues with a lawsuit, back taxes and large bank debt with personal liability. The LLC is basically insolvent and is holding several properties that it cannot sell or has funds to rehab in order to rent.

LLC 2 is a RE rental company (app. 80 units) owned 100% by husband and filed as a disregarded entity (Sch E). This LLC has large mortgage debt (app. $5M). It has a small equity position.

The husband and wife have several rental properties (held app. 20 yrs), which have positive equity and cash flow (Sch E).

The wife has a large self directed IRA that has acquired and rehabed RE rental units in 2009.

Since the owners attempt to record the business transactions in QB the books are a mess and the finances are intermingled to the extent that checks are disbursed from the account that has the money no matter where the liability, including payroll. I only get consulted about this mess in March each year and attempt to reconcile it during the summer.

So a QuickBooks advisor has suggested that they consolidate recordkeeping into 1 QB file using Class to separate entities, which would also include personal and retirement fund accounting starting in 2010.

I am overwhelmed by this suggestion and have recommended against it based on how to separate the entities for tax and financial reporting, the liability problem associated with the blantant intermingling of funds and records, and all the other issues that can and will appear. I also advised that they consult with their attorney in this regard since the corporate shield will probably be pierced.

Thanks in advance for any input and advice that you can offer. Don't worry about sympathy because tommorrow I will have a bottle of vodka. Drinks for the house!!

[Lion EA]

Wow! Hire a full-time or part-time bookkeeper to work with all entities. If having all entities in one file helps the owners (if they remain DIY) record things, make transfers, etc., to keep the entities separate in their own classes, then go for it. Charge them a bundle to set them up or have them hire the QB consultant. Maker sure the consultant or you train them to transfer funds where needed to pay bills and make deposits where they really belong going forward. Or have them hire you starting after tax season to set 2010 caught up correctly in separate files or in one and run it going forward (as well as your usual cleaning up 2009). Sounds like you could have an eight-month job each year!

[Terry D EA]

I am a QuickBooks Pro Advisor and I can't say that I like the previous suggestion on classes either. The ideal situation is two separate entities and two separate set of books which I can tell you are well aware of. Maybe I am missing something here but how is class tracking going to generate separate income statements and balance sheets? This is a mess indeed and I hope it brings you big bucks and maybe if you charge enough, they will finally listen to you.

[BulldogTom]

I have done the class tracking in QB to separate divisions of the income statement that need to be reported separately to outside entities. It is not real easy to manage the reporting on it, but it can be done. I don't know how you would divide the Balance sheet using classes? That would take some time to figure out.

They need a bookkeeper. A good one. That costs money. Keep raising your fee. Maybe you can get them high enought that they see the value of a bookkeeper.

Tom

Lodi, CA

[JonesTaxPro]

I agree with Terry on the 2 separate set of QB for each company. I work full time as an acct for Taco Bell. He owns 4 stores and I do a P&L by Class to separate each store, but it is under 1 company. As for the balance sheet you have to have each store with their own set of accounts. It does work, and I export everything to a spread sheet every month to make it easier to read. He also owned a Quizno's which I set up another company under QB.

[kcjenkins]

Of course, the whole problem is that they will not even do the basics, such as truly seperate bank accounts for the different entities, so it is highly unlikely that they will do all the extra work it takes to generate the proper reports. And even if they did, it does not do anything about the basic problem of mingling of funds between the Corp and the disregarded LLC.

[cred65]

Thanks gang,

Client has agreed to keep the 2 entities separate and do a much better job of bookkeeping!

Beverages for all!!