8832-SMLLC To Partnership (Timing Concern)

[wyzeadvisor]

Good morning all,

Here's the case: My clients are MFJ and have a parent/child LLCs structure for real estate purposes. They are equal members in their holding company LLC (treated as a partnership, by default) that owns 100% of the membership interest in the subsidiary LLC, which holds title of the underlying asset. All of this happened in 2021.

Recently, they transfer 5% ownership interest from their 100% to another member. For tax purposes, the subsidiary LLC won't be treated as a single-member LLC and the income won't just be reported on the 1065 of their holding company LLC. I need to file a form 8832.

My questions to you are:

1) Should I wait to file a 1065 for both LLCs in March 2022 alongside a form 8832 asking for late relief on the new classification of the subsidiary LLC as: "The entity has not filed a federal tax or information return for the first year in which the election was intended because the due date has not passed for that year's federal tax or information return"?

2) Should I just file the form 8832 right now and so everything will be set in March 2021 for filing the 2 1065s?

Thank you for your clarifications!

Best

[sjrcpa]

The minute the SMLLC has a second member  it is a partnership by default. Why do you need an 8832?

[wyzeadvisor]

Hi,

Thank you for replying.

I thought I needed to file the 8832 because, initially, they've applied for an EIN under the assumption of SMLLC.

What do you think?

[BobKamman]

I don't think the EIN application has any binding legal effect on what type of entity is selected.  But if it does, maybe they need to get a new EIN for the "new" partnership.  

[wyzeadvisor]

So you think they can just apply for a new EIN without having first filed the 8832?

If that is the case, it becomes much simpler.

Do you also share the point of view that as soon as they accepted another member, the LLC becomes a partnership and I have to file a 1065 for them?

[BobKamman]

I don't think they need to apply for a new EIN.  They just need to file partnership returns.  

I don't spend too much time thinking about people who set up LLC's (Lemmings Leaping Cliffs) for rentals because, well, everyone else at the seminar is doing it.  

[qbteachmt]

Here are some resources for your reference:

https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein

https://sa.www4.irs.gov/modiein/individual/help/help-toc.jsp

https://sa.www4.irs.gov/modiein/individual/help/keyword.jsp?question=Do%20I%20need%20a%20new%20EIN?

[wyzeadvisor]

Hi,

I completely understand that they would need a new EIN but what about the form. Do you think I have to file it or I can just file a partnership return?