Monday Sept 16: the IRS deadline for Partnerships and S-corps!

[Michael Plaks]

September 16 deadline (delayed one day since Sept 15 this year is Sunday) applies only to

1. Partnerships (including some multi-member LLCs) that filed a 6-month extension request on Form 7004 on March 15
2. S-Corporations that filed a 6-month extension request on Form 7004 on March 15

I’ll start with a concise summary, followed by a more detailed explanation:

• S-corporations: September 16th
• General and limited partnerhips (GPs, LPs): September 16th
• Single-member LLCs: October 15th
• Husband-wife LLCs in community property states: October 15th
• Other multi-member LLCc: September 16th

Now bear with me, as this can get a little confusing, especially with LLCs.

1. Most LLCs (Limited Liability Corporations) are NOT corporations. In order for an LLC to become a corporation, you had to file a special request with the IRS. If you did - you would probably remember. If you did not - then your LLC is not a corporation.
2. If your LLC has yourself as its only member, then it is a single-member LLC. The IRS considers single-member LLCs to be disregarded entities. It means exactly what it sounds like: the IRS ignores them, and these LLC do not need to file a tax return – at all. Instead, all business activities of single-member LLCs are reported on its owner’s individual tax returns. Those are due on October 15, provided an extension was filed on April 15th.
   
3. LLCs owned by more than one person are naturally called multi-member LLCs. The IRS treats them as partnerships, unless they specifically elected to be taxed as corporations which is rare. Partnerships must file a separate partnership return on Form 1065, which was due on March 15th. If you have such multi-member LLC, and you filed a Form 7004 extension on March 15th, then your deadline is now, September 16th.
   
4. LLCs owned by husband and wife are tricky for tax purposes. They are supposed to be treated as multi-member LLCs. As we just discussed, it means partnerships. However, in community-property states such as Texas, husband-wife LLCs are treated as single-member LLC. As such, they are disregarded entities for the IRS: no tax return needed for the LLC. LLC business transactions will go on the business schedules included with the couple's personal tax return. Husband-wife LLCs in non-community-property states can file either as partnerships or as part of the personal return, under the relatively new qualified joint ventures rules.
   
5. One more twist for the multi-member LLCs. If the only business of a multi-member LLC is holding rental properties jointly, then the LLC does not have to be treated as a partnership, and it does not need a separate return. Instead, all rental income and expenses are divided between partners and reported on their respective personal returns. Please be careful: this exception from partnership treatment applies only to strictly rental operations, and it has some restrictions that can derail the plan. To be safe, you may want to file a partnership return anyway. All other LLCs, including non-rental real estate businesses, are definitely partnerships.
   
6. If you do have an S-corporation or a partnership with a valid extension, then you must file at once. Otherwise, you’ll be hit with harsh penalties. It’s $195 per month, per person. If you did not have an extension, then the penalty keeps accruing, going back to the original March 15 deadline. With 2 partners (or shareholders), you’re looking at a $3,500 penalty. Yes, it is three THOUSAND dollars, you saw it right. Even if you did not file an extension, go ahead and file by the deadline. You will at least stop already huge penalties from growing even bigger.
   

Finally, what if you are not ready, and your records are a mess? File SOME return anyway, with your best estimates. Later, you will need to submit an amended return with the correct numbers, but at least you won’t have to worry about additional penalties.

Please make sure to mail your returns certified mail, with return receipt. I have had many cases when the IRS claimed they did not receive documents timely, and I had to prove them that the deadline was met.

The IRS website provides a directory of mailing addresses for partnerships and for S-corporations.