Ask Us Anything
Dear Brass Tax Presentations,
TP is 50% owner in a 2 member LLC (LLC#1). TP forms a CA SMLLC (LLC #2) and receives a tax ID for it. When LLC#1 begins reporting on a K-1 to LLC#2, how do I report on the 1040? Because LLC#2 is a disregarded entity, should I just report the K-1 as I normally would on the 1040? As if the LLC#2 tax ID did not exist? Since LLC#2 is a CA SMLLC, I will complete Form 568 using the K-1 information. Thank you in advance! We’ll see you in December in San Jose.
Thanks.
From Brass Tax Presentations
A few years ago, the IRS changed the partnership K-1 and K-1 instructions to deal with this type of situation that can occur with disregarded entity partners. The instructions effectively ask you to list the name, SSN, and address of the owner of the disregarded entity owner on the K-1 and then they have a sub line to include the name of the disregarded LLC and its EIN.
The K-1 from the partnership will be directly reported on the owners Form 1040 as if there was no intermediate entity (the SMLLC). Because this is a CA SMLLC, you are correct in stating that the owner will file an FTB Form 568. On that 568, the income you will include will be only that reported on the K-1 from the partnership.