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SMLLC - Qualified Joint Venture - CA

Forum|Forum|2 years ago
October 18, 2023
2 replies
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My client resides in California, and they, along with their spouse, own a Single-Member LLC (SMLLC). For federal tax purposes, they are treated as a Qualified Joint Venture. California is a community property state, and the IRS mandates that each spouse reports their respective share of income and deductions on their own separate Schedule C forms. However, when using Lacerte tax software, it is generating two Form 568s and imposing a $800 minimum franchise tax for each LLC, which is incorrect. Has anyone in California encountered similar issues, and if so, how did they resolve this problem? At a high level, my primary need is for Lacerte to combine the two Schedule Cs information into one California Form 568.

Thank you in advance!

Lacerte Tax

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Best answer by abctax55

I agree with you Bill.

I also don't have the cite.

My 'cite' is at work (and I'm not...) but I researched this extensively previously and have done the "joint" on S-16 for several clients, for many years. And zero push back from the IRS.

Yes, I know that isn't 'authority' (hi Bob).

YMMV.

My initial answer was "how to make Lacerte do it". Over and out on this one.

T

TaxGuyBill

Level 15

If it is a Single Member LLC (with the husband-wife-community as one owner), shouldn't it only be on one Schedule C? There would be two Schedule SEs, but I think it would only be one Schedule C.

Iraheta CPAAuthor

Level 3

Because they reside in a community property state, the IRS mandates the use of two Schedule Cs. Below is an excerpt taken directly from the IRS website explaining how to report federal income tax as a Qualified Joint Venture, including self-employment tax:

"When spouses opt for qualified joint venture status, they are considered individual sole proprietors for federal tax purposes. The spouses are required to divide the business's income, gains, losses, deductions, and credits in accordance with their respective interests in the business. This same division applies when calculating self-employment tax, if applicable, and may have implications for each spouse's social security benefits. Each spouse must file a separate Schedule C (or Schedule F) to report their individual profits and losses. If necessary, they should also file a separate Schedule SE to report their self-employment tax. Spouses engaged in a rental real estate business not otherwise subject to self-employment tax should mark the QJV box on Line 2 of Schedule E.

Election for Married Couples Unincorporated Businesses | Internal Revenue Service (irs.gov)

T

TaxGuyBill

Level 15

@Iraheta CPA wrote:

Because they reside in a community property state,

the IRS mandates the use of two Schedule Cs. Below is an excerpt taken directly from the IRS website explaining how to report federal income tax as a Qualified Joint Venture,

Maybe I'm misunderstanding the rules, but I disagree. Unfortunately, I can't find the citation I'm looking for.

The way I understand it, you are talking about two different things.

The LLC in a Community Property State makes it a "Disregarded Entity", not a Qualified Joint Venture. In your case, it is even a SINGLE Member LLC. The treatment is almost the same, but not quite.

Again, I can't find the citation that I'm looking for, but from my understanding the LLC in a Community Property State files ONE Schedule C (because it is not technically a QJV), but files two Schedule SEs.

abctax55

Level 15

1) Mark the S-16 as joint, which will create two separate Form SE for the self-employment tax. That should result in just one F 569

2) Create the two separate Sch C's (which can be a royal pain), take the LLC designation down at the bottom of S-16 on one of them, and override the gross receipts amount on the F 568-IW (?) page so that only one is created and only one $ 800 payment is due.

HumanKind... Be Both

Iraheta CPAAuthor

Level 3

I appreciate your feedback. I find it unexpected that Lacerte is not able to manage this task seamlessly, given that it's a widely practiced procedure. I transitioned from using Drake tax to Lacerte, and with Drake, I could effortlessly consolidate the two Schedule C entries without any extra steps.

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