LLC Questions

These are legal, not tax issues. That said, I don't see any way you can have different investors in different projects within a single LLC unless there is a way to structure "investment" without "ownership". This brings you back to a legal issue.

An SMLLC that takes on partners needs a new EIN except if the SMLLC has chosen to be taxed as a corporation and the MMLLC continues to be taxed as a corporation.

Ira Smilovitz, EA

I've had two different clients involved in deals of this type. Yes, an LLC can work. The allocations section of the LLC Operating Agreement is going to have to be very carefully worded to ensure the money members have rights only to their deal and then only to their share of the deal.

I believe the entity would need to get a new EIN, as it has changed what type of filing the Service should expect.

In one situation, the client had private lenders who gave her money to invest in deals. She would pay them something based on an internal calculation each year. She would return their initial investment with the final year income distribution. In that case, we prepared a 1065, allocating to each member their income, with the remainder going to her K-1.

In the other situation, my client was the private lender. She received a 1099-INT which reported the excess of what she received over her investment. I did some research into the deals, which weren't particularly well documented. I concluded they were in the nature of lending activities, so we reported the interest on Schedule B. I based my conclusion on the short term of the transactions, and that the fee was based generally on time outstanding.

If her deals had been calculated as a portion of the income earned by the partnership as a whole, I would have come to a different conclusion.

Hope this helps.

You would think so, but the IRS says no, once an LLC has an EIN it uses that EIN despite changes in tax status.

You will not be required to obtain a new EIN if the following statements are true:

A corporation files papers with the state to convert to an LLC and will elect via Form 8832 to be taxed as a corporation.

The number of members in the LLC changes from more than one member to a single member.

The number of members in the LLC changes from a single member to more than one member.

A sole proprietor files papers to become a state recognized entity, organizes as an LLC, and will file Form 8832 or Form 2553 to elect to be treated as a disregarded entity or taxed as a corporation or small business corporation.

R's, John

The IRS page you referenced contradicts this IRS page:

Specifically, the SB/SE page states that LLCs are treated by the IRS as either sole proprietorships, partnerships, or corporations. A sole proprietor who takes on partners needs a new EIN.

Ira Smilovitz, EA

Not really. If you set up a single member LLC and don't have any employees or owe any excise taxes, you can use your SSN as the LLC's tax ID. If the LLC later changes to some other structure, the LLC then needs an EIN different from your SSN. But once the LLC has an EIN, it can keep using the same EIN if the structure changes, even if it changes back to a single member passthrough.

R's, John