LLC formed without business activity

Technical topics regarding tax preparation.
#1
Posts:
6043
Joined:
22-Apr-2014 3:06pm
Location:
WA State
Interesting situation came up recently and I thought I'd share it here.

We have a prospective client which is an LLC whose sole asset is a property in Mexico. By virtue of their ownership, each partner each receives a number of weeks they may occupy this property each year. Sort of a timeshare type arrangement.

Most partners use their allotted time personally and have no business intent or activity associated with the LLC, but some regularly rent some or all of their time each year.

They've been filing a 1065 for a number of years and got dinged with late filing penalties a few years back. They have 10-15 partners (I haven't seen the return yet).

Does an arrangement like this even warrant a 1065 filing? IMO, they don't meet the definition of a partnership: "joining together to share income/loss."

My research so far shows they don't qualify to file a §761(a) election as the LLC owns the property and not the individuals as co-owners.
I'm also inclined to suggest they dissolve the LLC, own the property jointly, and use the money they've been spending on tax filing to buy additional insurance. Risk aversion was their primary intent for the LLC to begin with.
~Captcook
 

#2
Posts:
6043
Joined:
22-Apr-2014 3:06pm
Location:
WA State
I guess I didn't actually pose a question here. Maybe that's why no one has posted a response.

I was wondering: Has anyone here run up against this kind of arrangement? Did they dissolve and "re-organize" as co-owners with more insurance? Did they maintain it and end the 1065 filing? Did they maintain the 1065 filing and perform a 280A calc with a bunch of special allocations between the partners using the property personally and those renting it out? Since all these partners maintain their own information as to rental activity, how was the rental information gathered effectively?
~Captcook
 

#3
sjrcpa  
Posts:
6477
Joined:
23-Apr-2014 5:27pm
Location:
Maryland
Can 10-15 US citizens own a piece of property in Mexico? Maybe the LLC was needed to purchase and own the property. I'm just guessing, but some other countries require an entity for noncitizens to own real estate.
 


Return to Taxation



Who is online

Users browsing this forum: Google Adsense [Bot] and 95 guests