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How do I report the losses to LLC's members?

San Jose, CA |

I own an LLC with 2 others. Our LLC's only asset are shares of stock in a small corporation that was dissolved (worthless) in 2011. This corporation was converted from a separate LLC four years ago, and 2008 was the last time my LLC filed a tax return (or issued a K-1). For the tax returns we filed for 2008 and prior years, our 1065 returns reported a small amount of business deductions and ordinary losses that passed through from the K-1 we received from the separate LLC. The losses were divided amongst the members on the K-1's our LLC issued. What returns do our LLC need to file, so our members can report the loss on dissolved shares do stock? Can our members deduct the full amount of their losses on their own 2011 returns?

Attorney Answers 3


  1. Best answer

    Ignoring any holding company problems on a company holding shares, remember that the California minimum franchise tax of $800 will continue to accrue forever and although the corporation is supposed to be responsible, rather than the members, (see Ralite), why is the LLC still alive if its not doing business? What happened in 09, 10? Are you running into the future with only a divided $800 loss? Has this corp stopped business? Hopefully there are no sales tax issues which might attach personally. Have you considered the 3 of 5 year profit rules and the "in business" requirement for ordinary and necessary deductions? I have big questions on what happened in 09, & 10. Where are the losses you propose in 011 coming from?

    Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.


  2. This sounds like a question for the LLC's accountant and or the member's accountants.

    Legal disclaimer: You can reach St.Clair & Greschler, P.C. at (303) 440-7500 or sglaw@stcglaw.com. Mr. Lane is an attorney licensed in the state and federal courts of Colorado. This answer is for general information only and does not create an attorney client relationship between Chris Lane or St.Clair & Greschler, P.C.and any person. You should schedule a consultation with an attorney to discuss the specifics of your legal issues.


  3. File Form 1065 and 568 if your LLC is taxed as a partnership. Forms K-1 will be given to each member indicating their allocated share of the various items of income and expense. Sounds like the entity needs to hire an accountant to handle its tax matters. It will be money well spent.

    Mr. Lively is a Certified Tax Specialist by the State Bar of California Board of Legal Specialization. He can be reached at 714-708-2593 or dlively@livelylawgroup.com.Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.