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Old 04-05-2014, 07:19 PM
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Oregon LLC, schedule C and partnership penalties

Hi,

My wife and I formed an Oregon LLC in Oregon just days before we moved from California to Oregon. we technically were California residents on the date of incorporation of the LLC. For the last four years, we have reported all our LLC income and expenses on our schedule C. Most years we split the revenue and expenses and reported two schedule C's.

I now come to find out that since Oregon is not a community property state our LLC is considered a partnership and we should have filed partnership tax returns and issued K1's to each other.

Our LLC has had minimal revenue and expenses. Profits amount to less that $2000 in its best year so far.

The IRS has never questioned our returns so far:

1) Do we need to file amended returns and issue past K1's for these past four years?

2) Are we liable for the thousands of dollars of penalties for late filing of form 1065 for all these years? If so, how can we get out of this? It would amount to far more than the income or assets of our LLC.

3) Separate question: Can I file for an extension to file our 1065 for this year and if I don't eventually file one (I need some tax advice), does this raise a flag to the IRS?

thanks!



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Old 04-06-2014, 06:47 PM
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Quote:
Originally Posted by flyboy View Post
Hi,

#1:My wife and I formed an Oregon LLC in Oregon just days before we moved from California to Oregon. we technically were California residents on the date of incorporation of the LLC. For the last four years, we have reported all our LLC income and expenses on our schedule C. Most years we split the revenue and expenses and reported two schedule C's.

I now come to find out that since Oregon is not a community property state our LLC is considered a partnership and we should have filed partnership tax returns and issued K1's to each other.

Our LLC has had minimal revenue and expenses. Profits amount to less that $2000 in its best year so far.

The IRS has never questioned our returns so far:

1) Do we need to file amended returns and issue past K1's for these past four years?

2) Are we liable for the thousands of dollars of penalties for late filing of form 1065 for all these years? If so, how can we get out of this? It would amount to far more than the income or assets of our LLC.

3) Separate question: Can I file for an extension to file our 1065 for this year and if I don't eventually file one (I need some tax advice), does this raise a flag to the IRS?

thanks!
#1;it is possible in CA NOT in Oregon. In Oregon you must file 1065 two Sch K1s as partnership , NOT as SMLLC UNLESS you hire your spouse as an EE , issuing her W2 then you can file Sch C/Sch SE. You can usually only file your federal income tax return for your LLC as a sole proprietorship if the entire LLC is owned by one spouse. The IRS does allow a husband and wife who are co-owners of a business to make an election to be qualified as a joint venture, where each spouse reports business income on a Sch C rather than on a partnership Form 1065.even in CA, if you and your spouse own an LLC, you cannot make this election to be considered a qualified joint venture(but your biz needs to be SMLLC owned by one spouse and the other is an EE).But IRS regulations specifically prohibit spouses who are co-owners of an LLC from making that election. As a joint venture, the married couple can elect not to be treated as a partnership. Instead, each spouse separately reports a share of all of the business income and expenses on Sch C/SE.



I now come to find out that since Oregon is not a community property state our LLC is considered a partnership and we should have filed partnership tax returns and issued K1's to each other. ===correct; the other option the married couple have would be to elect to have their LLC treated as a C or S corp, under which one or both spouses can receive a wage from the LLC for actively participating in the business. Your partnerships must file an Oregon partnership return
• aslongas it has income derived from or connected with sources in
Oregon. • and it has one or more Oregon resident partners.you ned to file Form 65 to report partnership income and Sche AP to apportion income between Oregon and CA. Self-employment earnings of taxpayers doing business or providing services within theTriMet and/or Lane Transit Districts are subject to these taxes. A partnership may elect
to file and pay the transit district self-employment tax on behalf of any or all the
individual partners.

1) Preparing Sch C as you did, instead of a partnership return, f 1065, can save you time and money, but be certain that you qualify for this election.If not , you must file amended returns for your LLC as partnership.

2) It deepdns; aslongas there is reasonable cause , then it is possible. The type of tax penalty charged can very depending on what you did wrong. The partnership minimum tax applies to tax years 2009 and forward. A partnership must pay the $150 minimum tax if:
• The partnership was doing business in Oregon during the year and It is required to file an Oregon partnership return. For 2009, As your partnership had to file a short year return, it,only owes a portion of the tax.

I guess you need to consult with your tax professional for information relating to your specific situation. First please contact DOR ASAP for more info. And Please contact a CPA/ an IRS EA in your local area fro more accurate professional help.

3) Correct; If you need more time to complete your 2013 business tax return, you can request an extension of time to file your returnby filing Form 7004. However, even with an extension, you must estimate how much you owe ,if you owe ,and send in that amount by the due date. Otherwise, the IRS can invalidate your extension.As your business is a partnership, your income tax return or extension is due by the 15th day of the 4th month after the end of your tax year. For example, if your partnership is a calendar year taxpayer, with a December 31 year end, you must file a 2013 tax return or extension request by April 15, 2014. The IRS may hit your LLC with costly penalty and interest charges if you underestimate your taxes, file your return late, or do not furnish certain information by the due date.



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