Barney, an individual, and Aldrin, Inc., a domestic C corporation, have decided

Question

Barney, an individual, and Aldrin, Inc., a domestic C corporation, have decided to form BA, LLC. The new LLC will produce a product that Barney recently developed and patented. Barney and Aldrin, Inc., will each own a 50% capital and profits interest in the LLC. Barney is a calendar year taxpayer, while Aldrin, Inc., is taxed on a July 1 -June 30 fiscal year. The LLC does not have a %u201Cnatural business year%u201D and elects to be taxed as a partnership. 1.Determine the taxable year of the LLC under the Code and Regulations. 2.Two years after formation of the LLC, Barney sells half of his interest (25%) to Aldrin, Inc. Can the LLC retain the taxable year determined in part (a)? Why or why not?

Explanation / Answer

Solution.

1. Determinetion of the taxable year of the LLC under the Code and Regulations.

A limited libility company is not a seaprate tax entity.

The IRS treat L.L.C like a sole proprietorship or a partnership depand upon noumber of member in your L.L.C.

The IRS treat co-owned LLCs as partnerships for tax purposes. Like one-member LLCs, co-owned LLCs do not pay taxes on business income; instead, the LLC owners each pay taxes on their share of the profits on their personal income tax returns

Each LLC member's share of profits and losses, called a distributive share.

In the light of above theory LLC has not seaprate taxable year.

Therefore in this question Barney can pay tax on his share as a calendar year taxpayer. while Aldrin, Inc., may pay tax on his profit of LLC as on July 1 -June 30 fiscal year.

2. YES , Aldrin, Inc. Can the LLC retain the taxable year.

Because due to change in percentage of share of profit do not effect Acconting year or taxable year.

All of the profits and losses of the LLC "pass through" the business to the LLC owners (members), who report this information on their personal tax returns. The LLC itself does not pay federal income taxes, (but some states impose an annual tax on LLCs.)

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.