T/S own Rev. Trust. Trust wholly owns LLC. LLC operates business. How to report Income? 1040 or 1065?

[taklecpa]

Pros—if you have a clear and well-supported answer, please share. If not, I’d appreciate refraining from unhelpful or judgmental commentary.

The taxpayer and spouse are the grantors and co-trustees of a Revocable Trust. The Trust wholly owns an LLC, which operates an Amazon FBA business. The taxpayer and spouse reside in a non-community property state, and no tax election has been made for the LLC.

Tax Filing Questions:

1. Given this structure, should the business income be reported on T/S Schedule C Form 1040, or is a Form 1065 partnership return required?
2. If reported on Form 1040, should there be two Schedule Cs—one for each spouse?

Key Considerations:

• The LLC is wholly owned by the Trust, making it a Single-Member LLC (SMLLC) and a disregarded entity for tax purposes. As a pass-through entity, reporting falls onto trust Trust 
• Since the Trust is revocable, it is treated as a grantor trust for tax purposes, therefore disregarded entity as well, meaning the grantors (T/S) are required to report the income/loss of the LLC
• An LLC owned by a husband and wife in a non-community property state is typically considered a partnership and must file Form 1065
• However, since the LLC is wholly owned by the Trust (not directly by T/S), the IRS may still treat it as a disregarded entity, allowing income to be reported on Form 1040. An argument can be made where the true economic owners are T/S (via indirect ownership) and therefore, 1065 is required. 

[qbteachmt]

Why have you asked the same question of the same people three times?

Here is your original topic, already being answered by peer volunteers:
https://accountants.intuit.com/community/proseries-tax-discussions/discussion/revocable-trust-granto...

It helps to keep it to One Topic, so that you don't get answers in multiple places and so that anyone reading your topic can see the help you're already being given and doesn't need to reinvent the wheel. Thanks.

[taklecpa]

Hi there, 

Appreciate your concern.

First post was under ProSeries, which isn't correct. Nobody answered the question asked. 

I submitted the second post with updated clarity. Nobody answered the question asked. 

I submitted this third post with more clarity, and with a preface kindly requesting pros to only respond if they have an answer to my question, and to refrain from unhelpful commentary. I have yet to receive an answer to the question asked. 

What do you suggest I do going forward when I don't get a satisfactory answer? Should I wait a week before reposting? Or find a different community?

[qbteachmt]

Your second post was posted here:

https://accountants.intuit.com/community/practice-advice/discussion/t-s-own-rev-trust-trust-wholly-o...

And yes, you got an answer. It might not be the answer you wanted. But you have a discussion going, if you would just keep up your side of the discussion.

And perhaps you don't like Bob's style. But he's a volunteer, and he did provide an answer. If you need more clarity or have something else regarding that same issue, just keep adding to that same topic.

This is not email. It's an internet forum. You can come to the topic using a browser. And it's not customer support. It's peer users.

So, you get what you pay for. It doesn't make it wrong. If you feel it's wrong, you're gonna need to go elsewhere, because your three topics on the same issue are in this same peer user community.

[taklecpa]

QB, you stated twice that Bob gave me an answer. I'm truly having trouble deciphering what the boy is actually trying to convey. Would you mind assisting me with that? Apparently I've mistaken Bob's answering style for being snarky, pretentious and unhelpful. 

Maybe it takes time to get used to this forum's "volunteers'" style. Maybe one day I can start calling myself a "volunteer" too and hand out riddles during tax season without actually being helpful and be cloaked behind the "get what you pay for" defense. Quit calling yourselves volunteers to make yourselves feel worthy. Your disclaimer sentence encapsulates this entire experience. 

[qbteachmt]

Yes, we all tolerate each other here, including Bob. It's no different than a real office from that perspective.

Sure, you can volunteer, too. There's no entry bar, no "you must be this tall to snark." I think you will notice there is real help, though. Everyone gets a bit tired and overworked, again, just like in real offices. And so many people work from home or pulled back from large offices, that the internet seems to have become the water cooler of the day.

Meanwhile...

Bob's answer: "You're playing with Russian nesting dolls here. The LLC is a disregarded entity. The trust is a disregarded entity. Give my regards to the husband/wife partnership, the first level where anything really exists."

In other words, drill into it and it seems you only have the one entity that exists for purposes of reporting.

[taklecpa]

Got it, thanks for the explanation. So both you and Bob are saying this structure is deemed a partnership for federal tax purposes? 

[qbteachmt]

LLC is a State construct. We don't know if this is common law, community property, "by the entirety."

I found you this article:

https://www.thetaxadviser.com/content/tta-home/issues/2019/apr/llc-spouses-partnership-joint-venture...

[taklecpa]

Yes, I read that article. Also read the below:

https://shuffieldlowman.com/blog/the-disregarded-multi-member-limited-liability-company-as-a-gifting...

Like I said in an earlier post, I have tens of tabs open and feel like I can make the argument for either position. But my client (he's actually a personal friend) is in NY; NY recognizes tenancy by the entirety for real property, but I'm unsure if it's recognized for the question at hand.

Apologies for the delay in responding. 

[qbteachmt]

"NY recognizes tenancy by the entirety for real property"

Which doesn't apply to the operations, and wouldn't apply to real property, when the LLC is owned by the trust. If your taxpayers were filing separately, that's when they would split reporting the trust info, which is passthrough, right?

As Bob first stated, the only real tax entity is the MFJ.