Correct LLC ownership distribution

[william_perico]

Hello, this is my first year doing taxes with Turbotax. I am a foreign citizen living in the U.S. My parents are also foreign and reside abroad, and they were instructed by an accountant to purchase a house in the U.S. through a company. They purchased the house in 2012 through a LLC, which has my father, mother, sister and me as equal partners. I was looking over my tax reports from previous years, and noticed that my parents' accountant has always reported a 50% split between my mother and father only to the IRS. As a result, they only generated a Schedule K-1 form to my parents, who would then report that on their individual filings. My sister and I, on the other hand, never filed taxes for this company, even though each of us owns 25% of it. I asked my parents' accountant about it, and she said that she would recommend reporting the correct split from this year forward. I was wondering how I should proceed considering that last year the company reported a 50% split for profit, loss, and capital at the end of the fiscal year, and this year I will be reporting a 25% split including me and my sister as partners. Can someone please provide me with assistance on how to properly file this change on TurboTax Business?
Thanks.
William Perico

[RichardK · Accepted solution]

Generally, the partnership sends Schedule K-1 (Form 1065) to the partners and the partners report the K-1 information on their tax return.

Unique to partnerships is the split of income of income and losses between partners is dictated by the partnership agreement, not their ownership percentage.

If the prior year split was incorrect, then the partnership should file as amended tax return and you may have to file prior year's tax returns, however, if the prior years were correct, you only have to report the information from the K-1, click here for IRS publication 541 Partnerships.

[william_perico]

Hello Richard, Thank you very much for your quick reply on this. I am sorry I did not mention this on my original question, but that is how my parents' accountant proceeded for the previous years. After generating the Schedule K-1 (1065) for my father and my mother, she reported the K-1 on their personal tax returns.

Thanks for the clarification on what dictates the split of profit, loss, and capital. So, just to make sure that I will file my business taxes properly this year, where can I obtain information pertaining my company's partnership agreement? Is that a separate contract held between partners only, or is it something that is reported to the U.S. Government when opening the company or filing my business taxes in the previous years?

Also, assuming that the 50% split reported in the previous years is correct based on the company's partnership agreement, my understanding is that nothing must be corrected or changed from last year, correct? In that case, I would report the 50% split this year once again, and only send a Schedule K-1 to my parents, who would then report it on their personal tax filings. In this case, my sister and I would not have to report anything on our individual tax reports, even though we own 25% of the company each. Can you please confirm if my understanding is correct?

Thanks again, and have a great evening!
Sincerely,
William