Most states simply permit the adoption of an operating agreement.
While that may be the case, not formalizing an operating agreement is certainly in the minority and not a wise decision.
An operating agreement is to an LLC what a partnership agreement is to a partnership.
Without an operating agreement, should there be an issue, there is no formalization of how the members intended to deal with the matter; divorce, change in member, change in member ownership, death of a member, etc. This can lead to significant legal costs to resolve a dispute, which will outweigh the cost of drafting an operating agreement.
Additionally, the operating agreement provides for the allocation based on the economics of the formation. Since an LLC is generally taxed as a partnership, the IRS does not like, and has specific provisions, for how income, loss, etc. are allocated. The overriding allocation is based on complex substantial economic effect. In other words, the IRS does not like shifting of tax consequences at the whim of the partners or between family or partners in different tax brackets unless these allocations pass the complex substantial economic effect regulations. Many LLC’s have an allocation that is based on the member’s interest in the LLC, which is based on economics.
Can you change the ownership allocation? Yes
Should there be some economic reason for doing so? Yes
Since you are most likely filing a joint individual tax return (form 1040), the end result will be the same from a federal income tax standpoint.
What does change is the SE Tax component and the SS ramifications.
So do you need two 1065’s? “no”. Any change in ownership would be handled through the allocation process.
Additionally, you only have an oral agreement; nothing in writing. Based on that, I would think that you should be able to make the change effective 1/1/2021. But keep in mind, I also believe there should be some substance to the change, but this is minimized due to most likely filing a joint 1040.
Since you are changing the “partnership interest” percentage, there will most likely be a question asking if the decrease was the result of a sale or exchange. You will answer this “no” based on your facts.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
