Discussion:1065 Filing Requirement
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Discussion Forum Index --> Tax Questions --> 1065 Filing Requirement
| 5 January 2007 | |
| Partnership (LLC) has 4 equal partners. Do not want to file 1065. Is there a form to file with the IRS to elect not to file as partnership? I looked for the form on IRS (thought it did exist) but couldn't find it - and I don't think the 8832 applies - am I right? | |
| 5 January 2007 | |
| 8832 is entity classification for corporations. If they want to be treated as a corporation, then yes, the 8832 is the one to file.... | |
| 5 January 2007 | |
| Yeah, no, they don't want to be a corp - just divide all income/exp by 4 and report on their personal returns. As far as I know, they have to file the 1065 - but thought maybe someone had another idea. This is for a real estate deal. I have clients who are related who own properties together and don't file 1065s, but then, they are related... | |
| January 5, 2007 | |
| For jointly owned property, I believe that you can do what you suggest, divide by 4 and each files a Sch. E. There was a similar thread months ago, and I recall Riley had some special insight, as usual... | |
| 5 January 2007 | |
| Family partnership? I don't think they can elect to file as self employed if involved in this, but I could be wrong...yes...it has been known to happen ALOT...hehe | |
| 5 January 2007 | |
| Why did they form an LLC if they don't want to file a 1065? Sorry, but that that is one of the requirements. Only other option I know about would be to terminate the LLC, and own property as individauls. But, better check with lawyer first!!! No more limited liability.(Looks like what they want to do, divide everything by 4, is just what the 1065 does.) | |
| 5 January 2007 | |
| Dang that Riley - always with that SPECIAL insight! Anyway, these LLC partners did the 25% filing on their 2005 personal returns so maybe we should just continue with that. The only thing that bothers me is that the partnership is a formal LLC. But, I guess if the other three partner's tax persons are fine with it, so am I...
By the way, I miss you guys. Guess you'll be hearing from me a lot now that it's tax season and I'm too lazy um, I mean, busy to do in-depth research...tee hee. | |
| 5 January 2007 | |
| PJLCPA - I just saw your post - that's exactly what I asked one of the partners. Maybe I should just let them consult with their attorneys first so that I'm the one not looking like the bad guy if I insist they file the 1065 (for 2006 and now, 2005 as I'm aware...) | |
Death&Taxes (talk|edits) said: | 5 January 2007 |
| I can't find that discussion either, JR, but I recall my tax lawyer boss would only do so when it was rental real estate owned as tenants in common (could be wrong there) where each had an interest that would not pass to the other at death. And I do think it must be real estate, not an operating business. | |
| 5 January 2007 | |
| Hey D&T - This isn't even rental real estate! It's four guys who bought land who are building a home on it and then will sell it. The more I think about this, and looking at the comments, I think that I will insist on the 1065. I feel that is the more correct thing to do, and I want to cover my rear-end. | |
| 5 January 2007 | |
| Estock, may want to look further into this. I haven't looked into this, so I could be wrong, but I would make sure that if they should file 1065 they do. IRS is getting better at finding non filers, and charging the failure to file penalty....(Others may be fine with it because they don't know LLC exists???) | |
| January 5, 2007 | |
| Estock, with the new info, I agree with PJL...file the 1065. Tough tatas on them, but that's what they want, after all. | |
| 5 January 2007 | |
| OK, Ok, now I know what the problem is......They're ok with the 1065 and results they get from it.....they just don't want to PAY for it......(I have a lot of clients like this:( ) Good luck! | |
Death&Taxes (talk|edits) said: | 5 January 2007 |
| So they don't even have any operating expenses [ ;) tell them that and duck] since the costs all go to the building and construction. If they don't wanna be a partnership, file the return for this year, tell them to dissolve the entity, each take their share of the assets and each be their own construction company next year. | |
| January 6, 2007 | |
| If the "partners" acquired the property as an investment and the activities they conduct do not rise to the level of a "trade or business," they may be able to elect out of the provisions of subchapter K, including the requirement to file a partnership return. This is done by filing a statement with Form 1065 containing the information specified in the Regulations - See Sec. 761(a) and Reg. 1.761-2. As to whether or not the activity of buying land, constructing a home and then selling rises to the level of a trade or business - that is another thread... | |
| inserted into this section of the discussion on 21 January 2007 | |
| Note: I don't think 761(a) is applicable given the fact pattern we have. 761(a) is available to organizations that produce property (our people here do that: build a house) but not to an organization that sells the property produced, which is what I assume these 4 people will do. -- Larry Hess, CPA, Albuquerque, NM - Talk to me | |
| 6 January 2007 | |
| After reading some of FTF65's responses, I think Riley has some competition (at least w/ respect to partnership taxation). | |
| 7 January 2007 | |
| I think if the LLC have two or more member then got a have to file form 1065. Even the member is couple. | |
| 7 January 2007 | |
| You have only two options: 1. Partnership, 2. Corporation. If you do not want 1, take 2. To save self-employment tax, choose S Corp. | |
| 16 January 2007 | |
| UPDATE! Thanks to all for the advice. I decided to tell my client that the 1065 is necessary. A week went by and I received a new email from him stating that the partners in the LLC do not want to "file any information returns until the property is sold". Let me also say that my client is not arguing with me about filing the 1065, he's ready to do it. It's the other three partners in the LLC. So, how do I advise my client further. He is entitled to a deduction for investment interest and property taxes, but since there is no formal filing on the LLC, does he lose this? | |
| 16 January 2007 | |
| Do the other partners file a 1040? If so, Why?......Because they WANT to or they don't really have a choice? Same thing with a 1065, people don't file a 1065 because they want to! If this were my client I would advise him of the requirements, tell him of potential penalties, and suggest that he explore his options for getting out of "partnership". See if they can just own the property individually. GOOD LUCK! | |
| 16 January 2007 | |
| Tell your client if they fail to comply with filing. Penalties are per partner per month! | |
| 16 January 2007 | |
| Ah, yes, penalties. Those are enough to scare anyone. Thanks again - we'll see what happens! | |
| 16 January 2007 | |
| And as I recall, the penalties work kind of like a joint return....They are calculated like Pegoo says, per partner, per month, and will be assessed to the partnership as one total amount due..Collections will come after EACH partner for total amount due, if not paid. | |
| 17 January 2007 | |
| Why would they get to deduct investment interest and real estate taxes currently? They are building a home, so those expenses should be capitalized. | |
| 17 January 2007 | |
| IRS is expecting a 1065 because of the LLC and based on the SS-4. Now I've had a situation where property was deeded to one individual but equity was owned by 3 persons (based on written agreement). I came into the picture after they sold and 1099 was issued to deeded partner. I skipped the 1065 and reported on Schedule D the sale in full and 2nd line negative amounts to reclass to other partners and included their SSNs. Of course no LLC, FEIN, and had permission to use social security numbers to reclass 1099. | |
Bottom Line (talk|edits) said: | 18 January 2007 |
| Since the property has not sold yet and they don't want to file any returns until the property is sold, at least two years returns would be needed (2006 and 2007). Something doesn't sound right with these guys. | |
Malinowski (talk|edits) said: | 18 January 2007 |
| We formed a two member LLC - husband and wife, community property state. Should we, could we go to 1 member and employ the spouse instead? Would this keep us from having to file 1065 anad keep it simpler with Sched C? | |
| 21 January 2007 | |
| Bottom - Well, I emailed my client back and told him to have his partners get a second opinion from their tax accountants, and that I was still sticking to my decision that this is what should happen. I haven't heard anything back yet. I wonder though, if they decide through consultation of another accountant to NOT do the 1065, does this compromise my relationship with my client. After all, I will now KNOW that he is not reporting information complete for his tax return - isn't that grounds for me not completing his return? I'd hate to fire him as a client, I've been doing his return (and now some family members of his) for years... | |
Bottom Line (talk|edits) said: | 21 January 2007 |
| It's a little convaluted (sp?) so let's make sure I understand. Four people are in an LLC that owns a piece of land that they are building a building on. Instead of filing a 1065 in 2005, they divided the P&L by four and showed that amount on their 1040's. They don't want to file a 1065 until the property is sold (which will be at least 2007). The reason for not filing 1065 is unknown. Since you have been doing one person's returns for several years, how did you show this situation in 2005? Does the LLC have any income or is the return only for the capitalization of the interest, RE taxes and expenses of building the building? Assuming that he is not understating income and only not reporting expenses, I'd be less likely to draw a hard line with him (assuming of course that not reporting expenses is not making him eligible for something like EIC). Do you know anything (qualifications, reputation) about the tax advisers for the other three people? I suggest you review the standards for EA's. That may give you some guidance. | |
| 21 January 2007 | |
| I have no idea about the other advisors - I don't even think that they have anyone. Also, good point about the 2005 return - I have to look, but I think my client gave me prop tax and mortg int for the property and I need to see what we did with it. I remember telling him at that time the activity needed to be reported through the 1065, so I don't think we actually did anything with the info - I think I told him I would amend his return once we did receive the K1. I'll check my notes.
The LLC has no income and the return would be only for reporting of capitalization. Yeah, so I guess by doing his return, he's the one that would be losing out by not having the K1 to show his portion of capitalization, and since no one is under-reporting, I'm cool with that. That makes sense. | |
Bottom Line (talk|edits) said: | 21 January 2007 |
| If the other three don't have a tax advisor, sounds like an opportunity...... | |
| 21 January 2007 | |
| I know - but I already talked to one of the other partners - he seems to be that "tax matters person", and apparently he didn't like what I had to say. That's why I suggested a second opinion. Besides, at this point, I'm not really interested in doing the 1065 - the "other" partner in this doesn't seem to have any respect for my opinion and this just seems like trouble. Que syrah... | |
Poorhouse Road (talk|edits) said: | 21 January 2007 |
| Estock you say they do not have a formal LLC. Does that mean no SS4 was filed and that there isn't any mutual agreement. If so these guys simply want the liability protection a LLC provides, but wish to be handled as an association for income tax purposes. If the title to the property isn't in the LLC name I see no reason why the transaction cannot be handled on each individual tax return with cross referencing each other on the amounts when the deal is completed. Your responsibility is to your client to make sure he reports his correctly and I wouldn't worry about the other guys. | |
| 21 January 2007 | |
| That is a great point - Poorhouse - if the property IS NOT titled in the name of the LLC, how do they think they get any liability protection? A related point - if the property IS titled in the name of the LLC, but they dont "ACT" like an LLC (and file the correct tax return), could someone pierce the LLC veil (like they pierce the corporate veil when someone doesn't act like a corporation)? Maybe they should ask that last question of their attorney. | |
Bottom Line (talk|edits) said: | 21 January 2007 |
| I also trip into some "opportunities" I wish I hadn't found. :) | |
| January 21, 2007 | |
| I agree with Poorhouse Rd...continue reporting on each individual's tax return in the manner it's been reported in the past. Why change it now, unless all of the partners want to form a legal partnership. The IRS will accept this. | |
| 21 January 2007 | |
| Poorhouse - They do have an LLC. I think what this comes down to is that we have four partners involved in something in which three of the partners have no idea what's going on (including my client) and are just doing whatever the deciding partner wishes. Thank you all for your comments - I really appreciate it! | |
| 22 January 2007 | |
| Estock, Don't you just love the different ways people do business! Sounds like you have your hands full.(to say the least!) I think at this point I would just explain my concerns to my client, show him the signature line of the return(that your declaration is based on all information of which preparer has any knowledge)and tell him you feel uneasy about this and maybe he should contact the lawyer that set up the LLC, and get an opinion from him.(He can tell you what's in the LLC and if there ARE other options for filing). Just so that you can sleep at night! | |
| 22 January 2007 | |
| Peter - yeah, at least this is being addressed in January and not April. The funny thing is, I know my client wants to do the right thing, but is being bullied. Which can't be good for this partnership relationship! We'll see what happens - hopefully they will see the light.
Woodstock (previously known as estock, until I found out some clients use this website - don't want them to be exposed to my knowledge flaws :) ) | |
| 22 January 2007 | |
| Woodstock,
It looks like you have alot of work ahead of ya. Time to be their book keeper: - May have to reclass everything. - File 1065 for 2005 w/ 4 K-1s. - Amend the 4 1040s / 1099s - file 1065 for 2006 w/ 4 K-1s - Amend the 4 1040s / 1099s - Remmitance of Tax Penalty I wonder, would their tax penalty bill be higher or would your service fees be higher. Hehe. | |
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