Multi-Member LLCs & Federal Tax Filings: The Truth Behind Exemptions. Clearing the confusion for Lazo customers and startup operators, discover if your multi-member LLC is exempt from filing Form 1065 to the IRS and why this practice may still be discouraged. Get the latest expert insights to make informed tax decisions for your business.
In theory, when the IRS assigns an Employer Identification Number to any company, they should start filing annual tax returns, regardless of whether they are active, or not. When the IRS sends the EIN, they also send the due dates for the first obligation.
Also in theory, there is an exception to this rule: if a multi-member LLC treated as a partnership does not have any income, expenses, or credits, it shouldn’t be required to file a tax return.
However, we descourage this practice for a simple reason: the IRS has no way of knowing if a given company had cash movements or not along the year, and it is not something that happens too often. So when the date is due and no statements have come from your company, the tax agents will naturally suspect that you are not complying with regulations. The “no news, good news” approach does not apply here.
When the filing date comes, and they have no information on your company, they will start to wonder what are you up to and ask questions. As a result, you will have to respond to notifications, prove that there were no movements, and, in the worst case scenario, even submit for an audit. Bare in mind that if you end up having federal officers questioning your integrity, investors won’t like this at all.
That’s why we strongly urge you to always comply with the tax filings due dates. It’s much easier to prepare and send a tax return than to resort to the administrative route of answering to offiicial inquiries.
Lazo provides all the necessary filings as part of our Tax Solutions. Reach out to learn about our Starter Annual Company Tax Package, which will ensure that you are covered from the beginning with all the necessary filings so you don’t have to worry about it any more.
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Happy Tax Season!
The Lazo Team💜.
