Fed ID Question LLC related

[Michael Klinger]

I wasn't sure which forum I might get an answer on, but since this relates to Commercial/Apartments. As its tax season, so hard to get the attention of an accountant on this one right this second. So here goes:

For "good reasons" and as part of a 1031 exchange, my California LLC acquired three different Ohio apartment properties in January. And for "good reasons" that would likely to put the forum asleep, one new Ohio LLC was formed to contain each of the new properties for a total of three new LLCs that are 100 percent owned subsidiaries of the parent California LLC, which files federally as a 2 person partnership with an established Fed ID #.

All things otherwise being equal, the LLC's were only created to acquire the properties a certain way not particularly to run a business through. For simplicity and so far in this early stage, all three of the properties', bills, cash flow, etc. for all of this is flowing through the parent LLC.

So... Do my Ohio LLC's under the main LLC "have to" have a Fed ID # if they are only there to contain ownership of the property?

[Brian Burke]

I'm not a CPA so take this advice for what it's worth, but I've done what you're doing and the key here is you said that "three new LLCs that are 100 percent owned subsidiaries of the parent California LLC". 

To me that says that these LLCs are single-member LLCs that are disregarded for federal tax purposes.  This means that you don't need EINs for the three disregarded entities. 

If you go to fill out a W-9, you would put the name of your California entity in box 1, the name of the disregarded LLC in box 2 and check the box in #3 that applies to your CA entity (probably LLC taxed as partnership) and you use the EIN of the CA entity.

[Michael Klinger]

@Brian Burke -- Good thoughts.

I do have an obscure reason why I might need to go the FED ID route on one property and if so, then I will do all of them that way. Of course, if I can eliminate complexity without creating potential problems, that is appealing too.

I've pieced a some additional input that I have received today and thought about:

1.) CPA -- said check back to Q.I. and get their input 2.) Also said check with closing Attorney, maybe Fed ID#s were issued and it got past me (that I doubt , but sure, I will call).

2. Q.I. -- regarding issue as it relates to integrity of 1031 -- said indifferent about running business through parent or individual LLC, but assumes that the subsidiary LLCs are single member. Which they are, so disregarded. They may have been momentarily not during the transaction, I need to look into that detail.

3.) CPA pointed out that while it adds complexity to banking and bookkeeping, running the LLCs as separate businesses and separate banking bolsters their position as LLC's in the event of actual Liability issues that would be better contained in on LLC. Really good point. Hmmmm.

4.) So if it makes sense to run the properties on different bank accounts and books if for nothing other than point 3 above, then they are going to need Fed ID for Bank accounts.

[Brian Burke]

Originally posted by @Michael Klinger:

@Brian Burke -- Good thoughts.

 4.) So if it makes sense to run the properties on different bank accounts and books if for nothing other than point 3 above, then they are going to need Fed ID for Bank accounts.

Agreed.  So I answered the question of "do I have to have", which is no.  But the question of "do I need to have" or "should I have" is different, and that answer can vary from no to yes.  But if you need a bank account and the bank wants separate EINs (and they probably do), then you do need them. 

But that doesn't mean filing separate tax returns--you can still file one return for the CA entity and put the EINs of the subsidiaries on it.  We do that for some of our disregarded entities that have EINs for banking.  And on others we don't have a bank account and don't have an EIN.  Gosh, that brings us back to the worst answer to any question:  "it depends."  LOL 

[Michael Klinger]

@Brian Burke  -- Thanks. It's a puzzle that should induce a coma, but I actually find the thought exercise of it all... stimulating.