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Returning Member
posted Mar 5, 2020 1:22:18 PM

Sch K Reconciliation Report error, Holding Company LLC and 1 Subsidiary LLC

Hi, I am doing a business return form 1065 for Holding Company. My books have 3 owner contributions. I have a Holding Company with 2 partner contributions (each having Profit percentage 50%) which produces 2 schedule K-1. Then I have a Holding company contribution to Subsidiary LLC, I put this in as partnership contribution with Profit percentage as 0% in Holding company return.

 

This shows an error for Sch K Reconciliation Report (Line K-1 K3). There are no percentages present even though percentages were entered, I cannot enter percentages in the error screen either. How do I fix this problem?

 

Please help?

0 4 1546
4 Replies
Level 3
Mar 5, 2020 2:52:26 PM

Why is the percentage 0? Doesn't sound right.

Level 15
Mar 5, 2020 3:18:05 PM

A partner can not have zero percent ownership. Doesn't matter if that partner is a living person, or another business such as a holding company. If the holding company has the minimum required 1% ownership, then one of the other two  partners must have 49% ownership. I don't know if you can give the holding company 1% ownership and then the other two partners 49.5% ownership. I would expect you to be able to do that.

But if the holding company does not have more than zero percent ownership, then the holding company is just flat out not an owner in the business at all, and therefore is not entitled to any distributions or earnings of the business.

 

Level 13
Mar 5, 2020 5:07:52 PM

Your facts need clarification:

  • You indicate 3 owners, but then you state "I have a Holding company contribution to Subsidiary LLC, I put this in as partnership contribution.....in Holding company return".
  • This sentence needs clarification as currently it does not make sense.
  • Additionally, what is the ownership of Subsidiary LLC?  LLC's taxed as a partnership do not have subsidiaries.  There are tiered partnership structures, but not subsidiaries.
  • Clearer facts and structure will help in responding  to your question

Returning Member
Mar 6, 2020 4:14:47 PM

Hi,

I think I over complicated things.

Holding company is owned by 2 partners.

Subsidiary company is owned by Holding company. Subsidiary is pass-through entity so no tax return is needed since it flows into Holding company tax return Form 1065.

 

I fixed my 2 errors by reclassing the holding company contribution. I then I had to fix “special allocation” to correspond to partner percentages for form 1065 p4-5, I labeled them “O” for ownership in SA column. I then had a new error for “199A Statement A”, (I had to look at Schedule K-1 worksheet since no amount carried to each partner) so I entered detail description for the line and entered the amount which was equal to the partners percentage.

 

Your thoughts helped me to change my thinking and fix my problems! Thank you for your help!