Multi-Member LLC 2019 Tax Return Questions

[Michelle131]

I am preparing a 2019 tax return for a multi-member LLC, and have a few questions to be sure I am accounting and filing correctly.         

1.   The LLC began in May 2019, but the member contributions started in 2017 before the LLC was formed.  The first tax filing is for 2019, so do I show those contributions in 2019?    If not, how do I show them?
2.   One member made subsequent contributions later on, and I want to know if this affects the % membership for each member, or if that stays the same regardless of additional contributions.       

[tagteam]

The ownership percentage is the default method for determining profit/loss allocation but that can vary depending upon your operating (partnership) agreement. Ordinarily, the subsequent contribution would impact the allocation percentage.

You are not required to complete Schedule L unless certain criteria are met (see screenshot). You can (and should) track contributions outside of TurboTax.

[Anonymous]

the profit and loss allocation is based on the partnership (LLC) agreement.  therefore it is possible for one member to contribute more or less than the others and receive an allocation that is not proportionate to what was contributed.    if there is no agreement seek out an attorney because in situations like this lawsuits do arise. 

[Michelle131]

That's very helpful, thank you.  Also, with regard to my question about accounting for 2019 contributions as the LLC formed in 2019, but contributions were made by members as far back as 2017.  Do I enter them all in 2019 since that is the first year of the LLC and its first tax filing (and we need to show the complete amount of contributions)?  This LLC was specifically formed just on purpose to handle a property investment and will probably dissolve when the property has been sold.  The members started investing and purchased the asset in 2017 and then in 2019 decided it best to form an LLC, thus this situation.  What advice do you have about the accounting and tax filing of this for tax year 2019?

[Rick19744]

My advice based on your updated facts is to get some professional tax advice.  

You have a situation where property has been contributed where the tax basis is most likely not equal to the fair market value.  This requires special attention at the partnership level known as Section 704(c).

In relation to your question regarding the one member that made additional contributions.  If your allocation of income, expenses, gains and losses are not in accordance with the member's capital account, then you definitely need to seek professional tax advice as your allocations most likely will not pass the substantial economic effect test.

Both of these issues require a one on one visit and are not conducive to back and forth in a forum such as this.