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Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 322
Experience:  Tax Accountant at Praxair, Inc.
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I have a a single member (I own) LLC and a single member (I

Customer Question

I have a a single member (I own) LLC and a single member (I own) S corp. Is there any way to retroactively sell the LLC to my S Corp so that at end of year I do not have to do a schedule C? What would be steps? How would the LLC's income be reported in the S Corp return?
Submitted: 1 year ago.
Category: Tax
Expert:  Jonathan Tierney replied 1 year ago.
Hi, my name is ***** ***** I can help. Just a question to clarify things: How long has the single member LLC been in business?
Customer: replied 1 year ago.

Single member LLC has been in business years.

Last year it lost $175k. So far in 2016 it's earned about $175k.

The S corp just was given election for 2016 for S Corp taxation as it was a LLC before


Expert:  Jonathan Tierney replied 1 year ago.
You are not allowed to "retroactively" sell your LLC to your S corporation, however, it is possible to make a separate S election for the LLC so it would be treated as an S corporation itself. See Form 2553 and its instructions,-Election-by-a-Small-Business-Corporation. You are supposed to make election within 2 and a half months from the start of year in which the S election is sought to be made, but late election relief is available, see Once you establish the LLC as a S corporation itself, you can transfer the LLC (now an S corp) to the older S corp and make an election to treat the LLC as a "Qualified Subchapter S Subsidiary" and file Form 8869, found here,-Qualified-Subchapter-S-Subsidiary-Election. The LLC would be required to file its own S corp return for the short year from January 1 when it becomes a QSub, so it just might be easier to file a Schedule C. I hope this answers your question. Please let me know if I can clarify anything or answer any additional questions.Thanks, Jonathan
Customer: replied 1 year ago.

I read online that you can sell an LLC to a S Corp.

For tax reasons is there any reason the sale (since I own both) couldn't be made effective Jan 1 2016 and pay myself a reasonable amount for the sale from S Corp?


Expert:  Jonathan Tierney replied 1 year ago.
You can sell an LLC to an S corp, you do not even have to sell it to the S corp, you can contribute the LLC as a capital contribution to the S corporation. However, if you choose to sell the LLC, you will not be able to recognize a loss on the transaction since you control both entities. The reason I am saying you cannot retroactively sell the LLC is because the transaction would not have any economic or legal substance, though the change in tax liability to yourself might very well be minimal or even zero. You can treat the transaction that way, though it is technically not the correct way to report the activity. I hope this answers your question. Please let me know if I can clarify anything or answer any additional questions.Thanks, Jonathan
Customer: replied 1 year ago.


Company A is a LLC taxed as a S Corp.

So, to confirm, what are the steps (maybe an internet link explaining) to contribute the 2nd LLC as capital to the 1st?

Does company A need to pay me for the contribution?

When doing taxes in 2017, would I just not file the schedule C for the 2nd company and instead report it's earnings as part of S corp or on another form?


Expert:  Jonathan Tierney replied 1 year ago.
The actual steps to transfer the LLC interest, depends in what state the LLC was created. The Secretary of State's office of that state might have a filing that is required. Company A does not need to pay you for the contribution, it can be considered an additional capital contribution by you.
Customer: replied 1 year ago.

Even if I contribute the LLC to S Corp, I still have to personally file a schedule C for it, right?

Expert:  Jonathan Tierney replied 1 year ago.
Yes, for the short period that is was a disregarded entity.
Customer: replied 1 year ago.

I was told that a S corp that owns a single member LLC the LLC is a disregarded entity and is reported on owner's 1040 w/ scedule C

Can you confirm?

Expert:  Jonathan Tierney replied 1 year ago.
A S corp that owns a single member LLC reports all the LLC activity on its own 1120S form, since the LLC will continue to be disregarded, but now all its income, deductions, credits, etc get reported on the S corp return which it would now be part of. The Schedule C I mentioned would only be to report the LLC activity that you owned the entity personally, from January 1 until the date it gets transferred to the S corp.
Customer: replied 1 year ago.

I think I got confused because of reading that said LLC had to be reported on owner's schedule C as a disregarded entity. Can you confirm?

In terms of the "formality" of transfer to S corp is that simply the date that I designate as such in the internal xfer agreement?

And do I need to "sell" the company and receive a payment from S corp for doing such?


Expert:  Jonathan Tierney replied 1 year ago.
That article discusses whether a single member LLC owned by an individual can be a S corporation shareholder. S corporation shareholders must be US citizens or permanent resident individual shareholders, estates of either of the two previous persons, or certain trusts. A corporation, partnership, or nonresident alien shareholder will automatically terminate a S corporations S election and will default back to a C corporation. A single member LLC is by default treated as a disregarded entity, and therefore all its activity get reported on its owner's tax return as if the separate entity did not exist. Therefore, if the LLC has a trade or business, that activity would be reported on Schedule C. In addition, if it has interest and dividend income, that income is reported on the individual's Schedule B. As far as the formality of the transfer, you only need to assign your interest in the LLC or the S corp for the valid. You do not need to be paid anything for the LLC, as it can be treated as a capital contribution.
Customer: replied 1 year ago.


Thank you so much for helping clarify. I realize this question has gone longer, and appreciate your help.

Last question, when I file the tax returns in 2017 for this year, I would file the 851 and 1122 for the single member LLC that was a subsidiary of the S Corp as per ?

Thanks again!

Expert:  Stephen G. replied 1 year ago.
Duplicate question? Jonathan is not currently available.CustomerStephen, so would the subsidiary single member LLC file 851 and 1122 or not? Thanks23 Apr 2016, 1:30 PMMeSection 1.1502-75(h)(2) provides that if a group wishes to file a consolidated return for ataxable year, a Form 1122 must be executed by each subsidiary.I would appreciate it if you would take a minute to rate my response as that is the only way we receive credit for the payments you have already made, even if you are a subscription customer.Thanks very much,Steve G.
Expert:  Jonathan Tierney replied 1 year ago.
Hi, Jonathan here again, based upon your prior questions, I am sure that you want to retain the pass-through status of the LLC's that you own, and Forms 851 and 1122 are only for C corporations, a S corporation would not file them. As far the the LLC you own directly as a disregarded entity that you want to put in the S corporation, you have two options, you can simply transfer the LLC to the S corp or elect S corp status for the LLC itself and make it a QSub. You can simply contribute the LLC to the S corp as an additional capital contribution or sell it to the S corporation. Actual payment for the LLC is not required as it could be treated as a capital contribution. This option would mean you would still need to file a Schedule C for any trade or business activity for the part of 2015 before the transfer to the S corporation. The LLC would then be the disregarded entity of the S corp and all its activity would be reported as part of the S corp. The second option is file Form 2553 for the disregarded entity to make it a S corp itself. You can then transfer or sell the LLC to the old S corp (just as discussed in the previous paragraph) and file Form 8869 to make the S corp a "Qualified Subchapter S Subsidiary." See,-Qualified-Subchapter-S-Subsidiary-Election. This election will allow the old S corp LLC to report its activity together with the new LLC on one single Form 1120S. If you make the S election for the new LLC and contribute it to the old LLC without the Form 8869 QSub election, the S election for the new LLC will terminate as the new shareholder will be an ineligible shareholder of a S corporation. These issues can be pretty complicated and difficult to understand, so I am going to suggest that we talk on the phone to make sure you under the issues involved. If not let me know if I can clarify anything or answer any additional questions. When you have a moment, please rate my answer.