client formed a multiple member LLC for multi family property investment. Client raised capital - passive partners signed pre-formation agreement. Deal never happened. client returned funds (less expenses) to passives. Client says technically partnership never formed. (I disagree) Are 1065 and k-1's still required?
Did your client file for an EIN? Did the partnership have a bank account? Did the partnership have any income? Is the partnership going to continue looking for more investment property? Are the same partners going to be involved?
...and if the answers to all Sue's questions are No, I wouldn't file a return.
The Client did file for EIN and the partnership did have a bank account. No income in the partnership but it did have expenses. The LLC is continuing to look for investment property and some of the prior passive partners may decide to invest in the new investment property and some may not. Unknown at this point.
If 1065 and K-1 not required would the passive partners submit the incurred expenses as investment expense on their 1040?
This may be more of a legal question at this point but if they got an EIN and opened a bank account seems like *something* was formed. Maybe the LLC paperwork was not filed but even without that I think a partnership exists here.
I agree, a 1065 should be filed.
This "partnership" had no defined partners, no assets and no income. On a whim these people are deciding whether they want to participate. I do not see a partnership at all. The expenses that were incurred sound like start-up expenses and not deductible as expenses. I would contact the IRS and let them know that the EIN was filed in error. Whatever the expenses are lost to the" partners" until they form something that resembles a real partnership.
This sounds like an "idea man" who needed capital and sought out investors and everything fell through. One idea does not constitute a partnership. If your client is going to be an idea man, he needs something more solid to form a partnership. If the partners considered it a true partnership, then they would have left their investment in the partnership for the next property that they would like to purchase instead of withdrawing their share because a deal fell through.
Sounds to me like the (deductible) costs of a failed business venture. Or, at the very least, a S/T capital loss. The partners are defined by their signatures on investment checks.
