jklcpa Posted April 9, 2011 Report Share Posted April 9, 2011 A second residence, a beach condo owned by the taxpayer and his wife, was put into a newly created LLC owned 50% by each. The sole purpose of the LLC is to own this condo. It has always been 100% personal use, never rented, never will be. Subsequent to the property's contribution to the LLC, husband and wife each gift 1% ownership in the LLC to their daughter. Other than the contribution of the property to this LLC, the LLC has no activity and no real business purpose or current profit motive. The LLC does have an FEIN. The taxpayer paid the real estate taxes from his own funds. Is a tax return for the LLC needed? What to do with the r.e. taxes paid personally? Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 9, 2011 Report Share Posted April 9, 2011 A second residence, a beach condo owned by the taxpayer and his wife, was put into a newly created LLC owned 50% by each. The sole purpose of the LLC is to own this condo. It has always been 100% personal use, never rented, never will be. Subsequent to the property's contribution to the LLC, husband and wife each gift 1% ownership in the LLC to their daughter. Other than the contribution of the property to this LLC, the LLC has no activity and no real business purpose or current profit motive. The LLC does have an FEIN. The taxpayer paid the real estate taxes from his own funds. Is a tax return for the LLC needed? What to do with the r.e. taxes paid personally? Was the title of the property transferred to the LLC? If not, there is no federal filing requirement for the LLC. I hope the state is like MD which charges $300 for the LLC just for keeping the status. Who gave them the brilliant idea of opening an LLC to your client? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 9, 2011 Author Report Share Posted April 9, 2011 Was the title of the property transferred to the LLC? If not, there is no federal filing requirement for the LLC. I hope the state is like MD which charges $300 for the LLC just for keeping the status. Who gave them the brilliant idea of opening an LLC to your client? Yes, the deed was transferred into the name of the LLC. Delaware charges $250 per year for LLCs to remain in good standing. That fee was also paid personally. The brilliant idea was their own, and their lawyer created the LLC. They are owners of a closely held corporation with a large line of credit collateralized by the corp's assets and guaranteed by them personally. Their thinking was that this would shield the unencumbered condo from the bank's proceedings should the corporation default on the line of credit. I don't believe the LLC offers them this protection, and both the lawyer and I both told them that at the time. Quote Link to comment Share on other sites More sharing options...
Bees Knees Posted April 9, 2011 Report Share Posted April 9, 2011 An unincorporated organization with two or more members is a partnership by default for federal tax purposes if its members carry on a trade, business, or financial operation and divide profits. If there is no trade, business, or financial operation activity in this LLC, then it isn’t a partnership. The fact that they applied for an EIN tells IRS they should be filing a partnership return (assuming they did not elect to be taxed as a corporation). However, Revenue Procedure 84-35 says: “The penalty (for not filing Form 1065) will not be imposed if the partnership can show reasonable cause for failure to file a complete or timely return. Smaller partnerships (those with 10 or fewer partners) will not be subject to the penalty under this reasonable cause test so long as each partner fully reports his share of the income, deductions, and credits of the partnership ....” My opinion is no need to file a 1065 since it really isn’t a partnership. If IRS does send a letter asking for a 1065, simply respond saying there is no business or financial operation, and Rev. Proc. 84-35 says there is no penalty. The other alternative if you want to play it safe is fill out a 1065 with all zeros and send it in each year. Charge the client for being dumb. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted April 9, 2011 Report Share Posted April 9, 2011 i would do the 1065, never know when they might decide to rent it out. Quote Link to comment Share on other sites More sharing options...
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