1. Home
  2. Taxes General Forum
  3. Late S election

Late S election

Question:

An LLC formed back in 2004 and I believe started operating as a partnership with two partners. Unfortunately, one of the "partners" was paid payroll with taxes taken out for work she performed in the partnership (instead of taking guaranteed payments). The other (main) partner was not paid and the company did not make money. Since they really were really operating as an S-corporation and withholding taxes as they went, we requested to be taxed as an S-corporation for both years under Rev Proc 2004-48. The IRS denied the request because the request wasn't received within 6 months after the due date of the 2004 return.

  1. How could we file a partnership return with one of the partners receiving wages?
  2. Since the IRS doesn't really know who the partners are yet, what about filing the partnership return with the K-1 going to the partner's (who received wages) husband?
  3. If neither of these would work, would it be beneficial to request a Private Letter Ruling? Thanks for any input.

Wayne Rivers, CPA

> > > > > > > > >
Reply to
Wayne Rivers
Loading thread data ...

You've got a hard row to hoe. Been there done that. Except this was before LLC's. In my client's case, he told me corporation, found out no corporation was filed, had to go back and amend 941's to zero, then coax IRS to transfer the money paid in into his personal 1040 account. But it was done. Here you'll have to do same for the 941's filed for 2004 into that faux employee's personal account; or maybe get refunds. Then file the 1065 with no wages of course and take it from there with inevitable penalties and interest. Glad it's not me. (grin

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

"Wayne Rivers" wrote

As Nike ads go, "Just do it". Most likely the net tax impact is going to be in favor of the government (FUTA and SUTA tax being paid on those wages). No, it's not "right", but it is what happened.

Nope. Keep the K-1's going to the partners. Send the W-2 to the partners.

It's probably not worth the effort and cost.

I have a partnership LLC that added a new member a few years back who, earlier that year, was an employee of the partnership. Now, they received a W-2 as well as a K-1 in that year. They since have received a K-1 only. The point being, no one at the IRS or the state will care on this topic. No taxes are being dodged to any degree, and there are unemployment taxes being paid on "wages" that might not otherwise be subject to those taxes. Fix it for 2007 and move on.

Otherwise, go back and amend all the 941's and get the payroll taxes refunded. If you do, remember that that partner might now be underpaid on estimated tax.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Reply to
Paul Thomas, CPA

AS you say, it's not right, and that is why is should be corrected. Partners do not receive W2 forms and are not paid wages. ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

How would it be treated, then, if the partners don't put in equal time and efforts, and have agreed to be paid in part based on the number of hours they work?

Stu

Reply to
Stuart A. Bronstein

"Stuart A. Bronstein" wrote

Generally through "Guaranteed Payments" to those partners.

Guaranteed payments do not have to be paid equally to the partners according to their ownership.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Reply to
Paul Thomas, CPA

You mean members; not partners. If the operating agreement of the LLC so specifies, then those corrections will also have to be made. or should be made. ChEAr$, Harlan Lunsfod, EA n LA

Reply to
Harlan Lunsford

So guaranteed payments are like salary, but treated as partnership distributions. Thanks. I wasn't aware how that worked. Stu

Reply to
Stuart A. Bronstein

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.