| The IRS has released proposed regulations regarding income allocation when partnership interests /profts are transferred or partners have varying interests/profits for other reasons. The IRS has requested comments on whether additions should be made to the list of extraordinary items that require proration as of a specific day and on whether other allocation methods and conventions should be permitted under the regulations.The IRS also requests comments regarding the application, under the new regulations, of a special consolidated-return regulation rule (Treasury Regulation Section 1.1502-76(b)(2)(vi)(B)).
I guess one way is to submit copies of your operating agreement of the llc.As you can see, a LLC is not a separate tax entity like a corporation; instead, it is what the IRS calls a "pass-through entity," like a partnership in your case. 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 IRS treats 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 (with Sch E attached). The LLC operating agreement can provide for special allocations of most items of income and deduction.A business can divide profits and losses in a way that is not proportionate to the owners' percentage interests in the business, it is called a "special allocation." The IRS pays careful attention to special allocations to be sure business owners are not trying to hide potential tax dollars, by allocating all business losses to the owner in the highest income tax bracket. If the IRS does not accept a special allocation that you make, it will tax you and your co-owners as if your distributive shares are in proportion to your ownership interests, regardless of what your partnership or operating agreement says.
To be certain that a special allocation is legitimate, the IRS checks to see if it has what it calls "substantial economic effect." This jargon means that a special allocation must be based on real economic factors of the owners' circumstances, not used to simply shift income around to reduce an owner's income taxes
Most operating agreements provide that a member's distributive share is in proportion to his or her percentage interest in the business. For instance, ifyou own 60% of the LLC, and son owns the other 40%, youwill be entitled to 60% of the LLC's profits and losses, and son will be entitled to 40%. If you'd like to split up profits /losses in a way that is not proportionate to the members' percentage interests in the business, it's called a "special allocation." However members' distributive shares are divvied up, the IRS treats each LLC member as though the member receives his or her entire distributive share each year. This means that each LLC member must pay taxes on his or her whole distributive share, whether or not the LLC actually distributes all (or any of) the money to the members. The practical significance of this IRS rule is that, even if LLC members need to leave profits in the LLC , for instance, to buy inventory or expand the business ,each LLC member is liable for income tax on his or her rightful share of that money.
So,Your LLC operating agreement, which is similar to a corporation's bylaws, lays out the structure and governing principles of the business. While family LLCs are legally no different from typical LLCs, your operating agreement provides family members the flexibility to create the organization in the manner best suited for your needs. The operating agreement recognizes the formation and purpose of the family LLC and also denotes the LLC's fiscal year and income tax status. This tax section is particularly important for family LLCs with only two members who are a son and a father. As spelled out in the operating agreement, the percent ownership of each family member is usually determined by the initial capital contribution. Further, the operating agreement specifies how distributions of cash or other revenue will be made to its members.I guess you need to contact the IRS for more info in detail.
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