LLC taxed as partnership to a SMLLC Question

[ljr]

Hi All, need some advice on best way to handle the a clients situation.

New client (soon to be ex-wife) does not and will not talk to ex. They own 2 residential rental properties with each property in it's own LLC with both spouses as 50/50 partners. 1065's have supposedly been file through 2019 (I have requested copies of both 1065's and I'm still waiting). In February 2020 (she thinks - again waiting on lawyers paperwork) they agreed that they would take 1 property/LLC each and the name of the other person removed from the other property as part of the divorce. She has no books or accounting for either property (just handed me bank statements for "her" property).

For 2020: I think they would have to file 1065's for the month of January and get a k-1 from both LLC's then just put the Feb-Dec on her 1040 schedule E? She claims no access to the other property info, is sure he is not filing and has no idea what he is doing. Once I get a confirmation on the property date could I just treat the entire year on a schedule E (telling her she is double counting his half of 1 month and we could have to amend if he ever files to pick up 1/2 of the other LLC Jan income)?

Any thoughts / advice would be appreciated. Thanks.

[George4Tacks]

It sounds like the LLC is dissolving, so I would file a final LLC to protect your client from future liability for possible state fees.

In this situation you do the best you can. You and the client will sign returns complete to the best of your knowledge. 

I am semi retired now. When I was going full bore I had a ceiling that was sometimes used to help to develop the best knowledge we had. Be realistic and give it your best shot. Use the attorney to try to get real numbers, but barring that - use SWAG (Scientific Wild Ass Guess) based on prior year and what the client can provide. We can only do what we can do.. 

All of the numbers are on the ceiling over my head. When the client looks up it can give them inspiration. My side of the ceiling is clear. Everything on the return come from the client. 

BEST OF LUCK

[BobKamman]

This comes under Code Section 6016, “Relief for Divorcing Couples Who Think The Rules Should Not Apply To Them.” If the divorce is not yet final, the property settlement is likely still just a proposal. Be on the lookout for them getting back together next month. Watch out for the husband, though, you know the type – went to a seminar, figured the answer to all problems is a separate LLC for each rental. (You know they’re not in California, paying LLC taxes.) The partnership returns were probably a way to avoid IRS audits – whoever heard of a 1065 audit, outside of abusive tax shelters and TEFRA?

Are there carryover losses? Is she filing MFS, or does she qualify for HH? When the tenants pay their rent, where does the money go? If the hot water heater goes out tomorrow on “her” property, whom do they call?

[ljr]

Without getting into the whole cheating husband etc etc. . . . . story - they had a profit on the 2019 k-1's that I can see from the personal return so at this point I assume no carryover losses. We will be doing MFS as kids are adults with children of their own - no head of household. He moved out over 2 years ago - she's still in the house. Waiting for any and all info from divorce lawyer and prior accountant for copies of tax returns (she doesn't have the 2019 1065's either)

[BobKamman]

I'm in a county where I can find deeds and other property ownership records online.  If you are too, you don't have to wait for lawyers (and run up your client's bills) to get essential information.  She may be a wonderful person but if she's in denial about owning property that produces income, it's time for a reality check.  

[qbteachmt]

You don't even seem to have a divorce, yet. You can check the property records to see whose deed is on the properties, because until the LLC no longer owns the property and it is transferred, there has been no change in ownership.

She seems to be jumping the gun on all of this. You don't file based on, "This is what we discussed would happen, and here's hoping."

[ljr]

I will see if I can check the deeds while I wait. She said the properties and LLC's have both had their names removed from the others property. But does that terminate the partnership LLC (I don't really have a lot of partnership experience - most of my clients are s-corp or smllc's) I guess I'm stuck until she sends me anything.

[qbteachmt]

"She said the properties and LLC's have both had their names removed"

I can use the county GIS website to access the current and prior deeds; I can use the Secretary of State's website to access the business entity records. Pretty much everything is on the web, now.