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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 355
Experience:  Former IRS Revenue Agent
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An LLC with 2 members (partnership) acquired a real estate

Customer Question

An LLC with 2 members (partnership) acquired a real estate note in 2015 (less than $100,000). The same note is being sold in 2016 at a potential profit. Is the LLC required to file a 1065 for the 2015 calendar year? The LLC satisfies all criteria under 6. on the 1065. Where would the LLC list the note purchase in 2015?
Submitted: 3 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Customer,

According to Form 1065 instruction, who must file, "Who Must File Domestic Partnerships Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes. Entities formed as LLCs that are classified as partnerships for federal income tax purposes have the same filing requirements as domestic partnerships."

https://www.irs.gov/pub/irs-pdf/i1065.pdf

Therefore, technically speaking, this LLC does not need to file tax return for 2015. However, there are several points you may want to further consider,

1) What do you mean by "The LLC satisfies all criteria under 6. on the 1065".

2) Make sure to see who owns the title of the real estate note. This title is which tax return(s) need to be filed under. Please make sure that no individuals' names on the title.

3) If LLC has filed tax returns prior to 2015, e.g., it filed in 2014. Then, it probably should have filed for 2015 with all 0s.

4) If we file the Form 1065 2015 return, without the proper extension, we may owe late filing penalty for this late filing tax return.

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

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Customer: replied 3 months ago.
1). Disregard - it does not apply in this case.
(2). Only the LLC is listed as the owner of the note.
(3). The LLC's first year of business is 2015, with no income or significant expenditures to deduct.
(4). Filed an extension prior to deadline. So no late filing penalties would apply.Fiona, so unless there was activity - as you mentioned - income nor incur any expenditures treated as deductions or credits for federal income tax purposes, I need not file for 2015, correct?
Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Customer,

Thank you for the follow up.

Because you have filed extension already, please follow up and file a first year LLC form 1065 with everything as 0 just for the sake of it. It is better to be done this way. Think it this way, this tax return registered the partners' name, etc. It serves some purpose. Because we know that the LLC will file for a second year return for 2016, we don't want 2015 to be picked up for penalty (after Sept. 2016). We don't want to get into an argument with the IRS.

So, please file the 2015 tax return.

Regards,

Fiona