Have a Tax Question? Ask a Tax Expert
Hi from Just Answer. I'm PDtax. I'll assist.
The final reporting depends on how the activities were reported previously. It sounds like the business never started, that the $$ was spent on investigation, rather than startup expenses.
If you are filing a final return, i would expense the administrative type expenses on the final return, and pass through the loss to each LLC member. They can then report the final LLC loss and their gain or loss on their investments separately.
I suggest that because the funds are gone, spent. That changes the treatment of expenses you incurred without starting up your business. Now the $$ spent should be expensed, since the funds have ben spent and the business is no longer in 'startup' mode.
Thanks for asking at Just Answer. Please rate my assistance using the star scale you'll see on your screen. I'm PDtax.
If you report the loss, the capital accounts will reflect the loss passthroughs for each.
Let's say you expense $14,700 expended on the final LLC return. The capital accounts for each would be $5,000 less their share of the $14,700 spent. The final balance sheet could then show $300 in cash, and $300 in total member equity.
I'm not a fan of an M-2. Treat it as expenses of the LLC, as loans from the LLC members.
If you do, and support the loans with promissory notes or other support, this will create ordinary loss treatment for the expended amounts.
Without the support, you will have nonbusiness bad debts, which will create long term capital losses for the members.
Thanks again. Positive feedback and a bonus if warranted will be appreciated. I'm PDtax.