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Requirement to file a tax return for an LLC that does not earn a profit
- Thread starter jmt111
- Start date
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Taxing Matters
Overtaxed Member
I assume your two member LLC is treated as a partnership for federal tax purposes. The basic federal rule for a partnership return (Form 1065) is that "every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes." See the Form 1065 instructions. It doesn't matter if the partnership didn't have a profit. If it had any activity, no matter how small, that would impact computation of tax it must file a return. Just getting one dollar in rent during the year would do it. Just buying a single postage stamp would do it.
It may help to understand why when you understand that the Form 1065 is not a tax return. It is an information return (similar in concept to a W-2 or 1099). The partnership itself does not tax on its income — its income instead flows through to the partners to report on their individual income tax returns. The IRS needs to know how the partnership did to know if the partners are reporting things accurately. And the partners need the information that the partnership provides them on the Schedule K-1s that are part of the Form 1065 return in order to prepare their tax returns properly. The information from the partnership impacts the partners even when the partnership loses money.
The penalty for failing to timely file a Form 1065 is expensive. It is $210 per partner for each month or part of a month that it is late. So for a two partner partnership that's $420 in penalty for each month or part of a month that the return is late.
The bottom line for you is that the return is required in your situation and you want to ensure you file it timely to avoid that late penalty.
It may help to understand why when you understand that the Form 1065 is not a tax return. It is an information return (similar in concept to a W-2 or 1099). The partnership itself does not tax on its income — its income instead flows through to the partners to report on their individual income tax returns. The IRS needs to know how the partnership did to know if the partners are reporting things accurately. And the partners need the information that the partnership provides them on the Schedule K-1s that are part of the Form 1065 return in order to prepare their tax returns properly. The information from the partnership impacts the partners even when the partnership loses money.
The penalty for failing to timely file a Form 1065 is expensive. It is $210 per partner for each month or part of a month that it is late. So for a two partner partnership that's $420 in penalty for each month or part of a month that the return is late.
The bottom line for you is that the return is required in your situation and you want to ensure you file it timely to avoid that late penalty.
Taxing Matters
Overtaxed Member
How do they not work well? Formatting the citation, or linking the code, or what? I've not noticed any problems so I'm curious what issues you've had.
I was referring to simply referring to code, not a technology limitation. This is a lay person forum not a practitioner forum.
Taxing Matters
Overtaxed Member
Oh, I see. You're right about that. I try to avoid quoting the code in consumer forums where I can and instead quote from IRS publications or instructions to provide a more plain language explanation for people. I got in that habit while working at the IRS — when explaining things to taxpayers being able to pull out the relevant publication or form instruction and point to the explanation that answered the question worked a whole lot better than handing them a copy of the relevant code or regulation section. Although I've not worked for the IRS in a number of years, I still remember where to find a lot of that stuff to link to people here, though it gets a little harder every year as things change and some references fade from existence (or my memory).
LdiJ
Senior Member
I would like to point out to the OP that the deadline for filing a partnership return is March 15th. Therefore they don't have much time to get it done. The OP should file for an extension if he cannot meet the deadline.
And yes, I am correct that the deadline is March 15th. It used to be April 15th, but that changed a couple of years ago.
And yes, I am correct that the deadline is March 15th. It used to be April 15th, but that changed a couple of years ago.
Taxing Matters
Overtaxed Member
For the OP, Form 7004 is used for that extension.
Correct. Congress finally changed the due dates of returns for partnerships and corporations to make them more logical, changing rules that had been in place for more than 60 years. It caught a lot of partnerships by surprise. I represented a few of them to get the late filing penalty abated when they missed the deadline to file the extension and instead filed the extension on April 15, thought they had a good extension, and then filed by October 15, which meant that their returns were now 6 months late, resulting in rather large penalties.
LdiJ
Senior Member
That first year, we notified all of our partnership clients in late January that the deadline had changed. We also (for that year only) automatically filed an extension for any partnership client who had not done their return by the deadline. We notified them again the next tax year in January. At that point, we decided that they had been notified enough.