Income before LLC start date

[sdtaxlady]

I got a new client in 2020, an LLC with multiple investors.  This company who hired me buys the land and builds the building and then contributes it to the new LLC which was formed in 2020.  It's a 6 million dollar project.  It came to my attention after the fact that there was income in 2019 from a campground on the land purchased and it netted a profit.  Only around $30K but still income.  The 1st LLC who built the building, it's a convenience store, has given us a list of assets and it does include start-up costs.  A bank account was opened and the income was deposited into the 2nd LLC's bank account and expenses were paid out before the LLC actually started.  I was not involved at that time.  My question is, can I subtract that income from the start-up expenses paid by the first LLC?  I am in a conundrum.  Nothing fits.  Is there any solution other than withdrawing from this engagement?

[qbteachmt]

Does the owner of record for 2019 have a tax return that shows they handled the rental activity?

Because otherwise, I got a bit lost trying to figure out who is who and when and which part for which year. Just narrow down that one issue, to start with. Don't jump all the way to the New LLC, yet.

After all, a $6m project didn't get built over just a couple of months. You stated that the people that hired you are the people that bought the land, while it was just the land. Follow up from there.

[sdtaxlady]

I was afraid it was hard to follow.  No, the income has not been reported as it went into the 2nd LLC's bank account.  The bank account was opened before the 2nd LLC was actually formed.  Ugly.

[George4Tacks · Accepted solution]

" This company who hired me buys the land and builds the building and then contributes it to the new LLC which was formed in 2020. " This sounds to me like the company (the first LLC?) that hired you needs to report it on their tax return. The later contribution of cash into the new (2nd?) LLC becomes part of their basis. 

It is possible I don't have the whole picture, but that is my take away with what I have read. 

[qbteachmt]

"No, the income has not been reported as it went into the 2nd LLC's bank account."

So what? That's Banking. Not Operations.

"The bank account was opened before the 2nd LLC was actually formed."

Again: so what?

You need to Separate Everything. Banking is not Income. What if your tenant paid in cash or chickens? You still have to report Rental income as part of operations. The chickens are a consideration received for Rent and have a value and all of that activity is reported.

[sdtaxlady]

I agree and have asked him to do that.  He has not seen it that way.  I'll try again with more insistence.

[qbteachmt]

Try this; I use it in class.

"You are working with (Deeded/Titled Property/Bank/PayPal), which is Discoverable. That means, if it happened, it can be located, and the IRS can find it."

Everyone who thinks, I can do it my way and the IRS will never notice...Has another Think Coming, as my Father used to say.

[George4Tacks]

---

@sdtaxlady wrote:

I agree and have asked him to do that.  He has not seen it that way.  I'll try again with more insistence.

---

You also have an ability to show them the door and not do the tax return. You will also be signing this tax return. 

[sdtaxlady]

I am not the accountant for the 1st LLC, only the 2nd.  But I agree with what you're saying.  Might be time to walk away.