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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16544
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I previously asked about our LLC receiving a 1099-S for a sold

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I previously asked about our LLC receiving a 1099-S for a sold rental property, and filed the 1065 as directed. It was late.

The IRS has assessed a late filing penalty, and now I realize there were errors in the return:

1) LLC was incorrectly listed as a GP.
2) LLC was shown as owned by my husband and I, and it was actually owned by our Trust as a single member.
3) As such, wrong form (1065) was filed? Which one should be filed?

This all affects the penalty, yes? How do I respond?

Megan C :

Hello, how are you doing today?

Megan C :

Basically, what should have happened is that the LLC would not file a return. Instead, it would be included on your 1041 for the trust (1040 if revocable living trust). This is because the LLC is a disregarded entity.

Megan C :

You need to respond to the IRS, and show them that you erroneously filed a form 1065. Then, amend your applicable return to reflect the sale properly

Customer:

Well I was informed by another expert there to file the 1065 because that's who received the 1099-S. He said if I didn't file that in connection with the the FEIN listed on the 1099-S, the IRS would flag it. I've never filed anything for the Trust before. Will that be an issue, and what about the Trust not having the same information listed on the 1099-S?

Megan C :

No, that's not an issue. The trust doesn't file its own return unless it is a irrevocable trust.

Megan C :

If you have a living trust, then you simply file on your 1040.

Megan C :

If there's only one member...there's no need to file form 1065

Customer:

How do I respond to the IRS stating that I erroneously filed the 1065? Just a letter? A special form?

Megan C :

Have you received a notice from them?

Megan C :

Regarding this return?

Customer:

Yes, it's a living trust.

Megan C :

So you will file a 1040X and include the sale on your personal tax return. The LLC is disregarded, and then so is the trust.

Megan C :

It all flows to you

Customer:

Yes, I received a $2k penalty for late filing of the 1065.

Customer:

I'm confused then about how the IRS deals with the 1099. Won't they come after the LLC saying, "you didn't file"?

Megan C :

I would respond to that letter. You will file an amended return, but there will be no change in your taxable income as you paid the same under the 1065

Megan C :

No, and if they did you would simply show them that you did file, and that it's a disregarded entity

Customer:

Well I haven't yet completed my individual return. That's due shortly (extension).

Customer:

I can't really respond to the letter. It's just a penalty assessment, say pay up.

Megan C :

Well then, include the amounts on your 1040. Then, when you respond to that letter include your 1040

Megan C :

Yes, you can - because you are disputing the penalty

Customer:

Is there a special form to dispute? Or just a letter?

Megan C :

No special form. Just a letter.

Customer:

What about how the IRS deals with the 1099? Won't they come after the LLC saying, "you didn't file"?

Megan C :

No, they won't - and if they did, you can show that you did file and that would be the end of it

Customer:

Oh boy. It's too bad I was led astray previously. Ok, I think I understand. If I have any followup questions related to this, how can I address them directly to you?

Megan C :

Let me find you my page, and you can enter the question below my picture and it will come to me.

Megan C :

But, for future reference you only file a 1065 if you have a partnership, or an LLC with more than 1 member

Megan C :

http://www.justanswer.com/finance/expert-myvirtualcpa/

Customer:

Yes, thank you. I understand that now. It's unfortunate the other expert didn't know or clarify that.

Megan C :

Is there anything else I can help you with?

Megan C :

If not, please rate as "excellent" so that I may receive credit for assisting you today

Customer:

I would like to respond to the IRS sooner rather than later showing that erroneous filing. You mentioned attaching my personal return to the response letter for the penalty, but if I haven't filed that yet, what do I say?

Megan C :

Explain that you are filing the sale on your personal return, as this was a single member LLC

Customer:

Ok, thank you. So saying that I erroneously filed the 1065 basically removes the return?

Megan C :

The IRS will respond to that letter. You could file an amended partnership return and zero everything out. Just fill out the same form and check the "amended" box

Customer:

Should I submit the amended return along with the letter? Does all this nonsense raise any audit flags?

Megan C :

No, it does not raise audit flags. Basically, even if it did it's fine because you are accounting for the transaction and paying the tax.

Megan C :

You can submit the zeroed out return with the letter, yes.

Customer:

If I'm mentioning that the sale will be reported on my personal return, do I include my SSN?

Megan C :

You can.

Customer:

I guess I'm just paranoid.

Megan C :

Don't be. This sort of thing happens ALL the time.

Customer:

Ok, thank you. :) I appreciate all your help. I feel much better.

Megan C :

You're welcome. Glad I could help.

Megan C :

If you don't mind, please rate my response as "excellent" so that I may receive credit for assisting you today

Customer:

Absolutely.

Megan C and other Finance Specialists are ready to help you
Thanks, XXXXX XXXXX your positive rating. Please come back and visit me any time you have a question that needs answered. It was a pleasure working with you today.