CA LLC was filed in 2018 for the rental property

[dandyboy5]

My client's attorney filed an LLC for my client putting one of her rental properties in it.  Now in 2021 we find out about it.  Though we have filed the 1120s and 100s along with personal returns for all the years we got notice from CA tax department that late fees are due along with the returns.  What should be done with the form 568 at this point?  Thanks in advance.  My question is since all the assets are already reported on the returns already filed what should go on form 568 for CA and is there a Federal return to also be filed?

Thanks again

S N K

[qbteachmt]

This client has an S Corp holding rental real estate? Whew.

Who is the partner/owner of the LLC, on the paperwork?

[George4Tacks]

File the 568 for all years subsequent to the original.  I some cases FTB may abate the penalties https://www.ftb.ca.gov/pay/penalties-and-interest/help-with-penalties-and-fees.html and the FTB resource for what is reasonable cause. 

There is no federal filing, other than the 1120S.

I agree with @qbteachmt that the election to put the real property into a corporation was very likely not the wisest choice, but the client selected the attorney and paid that person to set this up. It is not our job to ...

[qbteachmt]

Here's why it matters who is listed as the owner on the LLC:

If the S Corp solely owns the LLC, then there is no problem with those prior filings (back to 2018), based on what is stated here. If the person as an individual is listed as the sole owner of the LLC, then the corporation reporting the assets, liabilities, income, depreciation, etc, for that property would be an error on the 1120S, as would the 1040. There would need to be amendments, then. It's only three years.

And I would check the insurance coverage, too.

[dandyboy5]

Thank you all for your insight. 
I should have clarified that the rental property is commercial land and gets rent from the business tenant.  
The land was put in the LLC by the attorney to protect the clients other assets from potential liability.   
The LLC only has that one property in it. 

[dandyboy5]

And the llc is owned by her individually not the scorp.  

[sjrcpa]

And you reported the rental activity of this property owned by the individual on an S Corp return?

[George4Tacks]

The attorney set up a LLC (disregarded entity), with an election to file as a S-Corp. I love attorneys!

I had an attorney client who set up his own retirement plan. "An eligible employee is anyone who is not yet not less than the age of 21.'  I love attorneys!

[dandyboy5]

this client has different businesses which are reported on respective 1120 s.   She has residential rentals  that gets reported on sch e of 1040    In addition, she has a commercial land that was determined by her attorney that has a liability so he created an llc and put her commercial property in the llc.  The income from all has been on sch e.   
I’m trying to determine since the discovery of the llc whether I have to amend anything or whether just to file the additional Ca forms and pay the franchise fees and of course penalties for late filings that will come due.  

thank you for having me clarify 

[sjrcpa]

 So the land that was owned by the individual and now owned by the LLC has nothing to do with the 1120S?

[qbteachmt]

I think we got to the point of:

This one property being in this one LLC is the only thing that CA FTB would require to be filed/reported/paid separately. This was overlooked.

The other personally owned properties are not inside any entity.

Is that the nut of this issue? And all the other stuff has no bearing?

[dandyboy5]

Yes.  This commercial land is in an LLC that was overlooked.  She held it in her name and we reported it on schedule E.  Now if I understand it we need to file form 568 for 2018, 2019 and 2020.  

Final question I have is do we have to amend any of the 1040s and do we report the income from the land which was already reported on the sch e again on the 568?  

Thank YOU.

[BobKamman]

@dandyboy5  "The land was put in the LLC by the attorney to protect the clients other assets from potential liability."

If the LLC gets sued for negligence, it's likely the individual owner will also be named as a defendant.  That's why a good insurance policy is the best protection.  A jury is going to find the LLC negligent, but not the owner?  Highly unlikely.  With a judgment against the owner, her other assets can be taken.  What she was sold is just another way to create a false sense of security. 

[George4Tacks]

Do the 568s. Pay the penalties. Consider appealing the penalties. No amending of 1040 or 540...