New LLC, 3 members, no revenue only capital expenditures in commercial building & land. Are we required to file 1065 & K-1's with zeros?

[double2v]

Started a new LLC, three members, we purchased an industrial warehouse that needs a lot of work.  There's no income only capital investments.  It will be at least next year before any leasing income.  My question is do i need to file a 1065 and k-1's showing zeros for this start up year?   IRS Form 1065 instructions say under "Who Must File:..Must file UNLESS it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes".

[SweetieJean]

Didn't you incur expenditures when you bought the warehouse?

[ScruffyCurmudgeon]

Even if there were no other expenditures the acquisition of a fixed asset in real estate kicks off depreciation schedule.

[Carl]

Yes, you are required to file. Yes, you will claim your expenditures which will most likely be startup expenses, not business expenses because you are not yet "open for business". No, your expenditures will not be deductible. They will be carried over to next year and deducted from income then. But if you don't claim them this year, then you can't carry over to next year.

[SweetieJean]

For tax years beginning after 2015, the due date for a domestic partnership to file its Form 1065 has changed to the 15th day of
the 3rd month following the date its tax year ended. So, March 15, 2017.

[Rick19744 · Accepted solution]

Well I am impressed that you at least pulled  the instructions to the 1065 and began to read them.  Nice job.

I am summarizing your facts below to reach the conclusion that I don't believe you need to file a 1065 for 2016:

• Purchased  property that is being updated and is not ready to be leased - property is not placed in service and will not be placed in service in 2016, and as such, will not be depreciated.  All costs will be capitalized.
• May incur some organizational costs (Section 709) or start-up costs (Section 195) - these costs are capitalized and are either deducted (as allowed) or amortized (as allowed) when you begin your trade or business.  You have not begun your trade or business. Ordinarily, a partnership begins business when it starts the business operations for which it was organized.  Regulation 1.709-2(c).  You have not met this standard.
• In both of these cases, you have not received any income nor incur any expenditures treated as a deduction for federal income tax purposes.  
• Note that it is interesting that this "filing" requirement is different than that of an S corporation, but that is what the instructions tell you.  
• This language is still currently in the 2016 draft version of the form 1065 instructions https://www.irs.gov/pub/irs-dft/i1065--dft.pdf?_ga=1.253676170.286459965.1455758446

If the above continues to hold true, I don't believe you have a 2016 form 1065 filing requirement.

[TaxGuyBill]

I agree with Rick that you technically don't need to file.  However, if the LLC filed for an Employer Identification Number (EIN), the IRS *MIGHT* send you a notice asking about why it didn't file a tax return.  It is also hypothetically possible (but extremely doubtful) it could be audited and determined it DID have deductible expenses, and it would be subject to large late filing penalties.

Personally, I would print out a form from the IRS website and file it.  It would only have the names, addresses, ID numbers, etc, and the Yes/No check-boxes filled out.  Everything else would be zeros.  Again, it seems like it would technically not required, but it MIGHT be easier to file a zero return than to deal with any possible IRS notices.

[Rick19744]

Possible to get a notice...maybe.  If you do, then just respond.  Simple letter saying thank you for the inquiry, however, our LLC has not begun its trade or business and in accordance with the attached instructions (include a copy of the applicable page and underline the appropriate sentence) for form 1065 no return was required.

And if you have not begun your trade or business, then you cannot deduct any expenses and they should not be reported on the return.

In the end, the choice is yours.  I am very comfortable that no return needs to be filed based on the current facts.