Single Member LLC electing partnership status

[jw-rogers]

Hi there,

New to me clients. Husband and wife who own 4 rental properties. In 2022, two LLC's were formed, two properties in each, with the assistance of an attorney, and only the wife was listed as the only person on the articles of organization for both LLCs. Two EIN's are obtained for a partnership return due in 2023.

Taxpayers have not filed a 1065 for 2022 or 2023, have never filed a 1065. They do not live in a community property state. Properties are in the LLC names, two loans are joint, one loan is in husbands name one is in the spouses name.

What is the best way to fix? I thought about writing the IRS with a copy of the articles of organization explaining the LLC formation was not formed as a partnership and that the partner was not added until 2025. Curious how others have approached or advised on how to fix.

Many thanks and good luck to everyone!

[qbteachmt]

"with the assistance of an attorney,"

Who should straighten out this mess. But I'd be scared to go back to that same person.

"Two EIN's are obtained for a partnership return due in 2023"

So you have two LLCs, each with its own ID, and they are the two partners in something else? Why was any partnership return due in 2023?

"Properties are in the LLC names,"

Disregarded entities, if there is only the one human.

"two loans are joint, one loan is in husbands name one is in the spouses name."

Then no LLC owns any property for a partnership reason.

[TaxGuyBill · Accepted solution]

---

@jw-rogers wrote:

Two EIN's are obtained for a partnership return due in 2023.

---

EINs do not dictate how something is filed.  If there was only one member of the LLC, it correctly goes on Schedule E, not a 1065.

In the unlikely event the IRS were to ask for a 1065, just respond that there was no Partnership for those years and that that question on the EIN application was answered incorrectly.

I am not an attorney, but personally, I think the current setup is dumb.  From a legal protection viewpoint and from an easier tax viewpoint, each of the four properties should be in a separate Single-Member LLC (not two properties in one) and all of those Single Member LLCs could be owned by the Partnership.  But as I said, I am not an attorney.

[BobKamman]

@TaxGuyBill "each of the four properties should be in a separate Single-Member LLC "

There are two kinds of states:  Those like California that already charge an annual fee of $800 for each LLC; and those who might think about doing it because they are getting a lot less money from Washington to care for the sick and elderly.  

The truth about LLC's is that they will get you as much asset protection as you can buy for $5 at Starbucks, and that comes with a cup of coffee.  If the LLC is going to get sued, its single member is going to get sued as well, and easily found liable either for negligence or tortious interference with contractual relations.  Before talking to a lawyer, talk to an insurance agent about an umbrella policy.