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1040 Extended But NOT the 1065


austin3515

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Guy owns an LLC with NO employees. He filed his LLC 2006 1065/K-1's by their original due date of 4/15/07. There was no deduction for employer contributions reported on the K-1's. He filed an extension, however, for his 1040 (which returm he has not yet filed)

The question is, is it too late to make a SEP contribution for 2006 (plan is already in place). The argument in favor, of course, is that he is only taking the deduction on his 1040 since there are no employees.

Austin Powers, CPA, QPA, ERPA

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One caveat to J4's linked thread is that LLC can be taxed as a partnership which has slightly different set of ramifications that an S-corp has.

Which leads to a question: if filing a 1065, then there are other members in the LLC? if so, do they have eligible income and are they making identical % contributions to their own SEPs? (A common pitfall is one member wanting to contribute more or less than others, but that can break rules.)

Overall, I'd prefer the 1065/K-1 to have reported it. I doubt if the return can be amended at this point. The item that gives me pause is on page 7 of IRS Pub 560 under "where to deduct": it states that partner's contribution will be listed on the 1065/K-1 (before being reported on 1040 line 28).

But if he's the only member of the LLC w/ eligible/SE income then I might argue he's making the contribution from his own funds as a self-employed person rather than it being made on his behalf by the LLC, so the deduction would only go on his 1040 and not the 1065/K-1. Except, how was the 5305-SEP executed, as himself or as the LLC?

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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He is the only owner with SE income (he owns 99% and his wife owns 1%)

It was the LLC who adopted the SEP (as an aside, wouldn't it have to be, since contributions will be made with respect to the LLC's income?).

I agree that amending the return doesn't in and of itself extend the due date, but let's say we all conclude that he really does have until he files his 1040 - then we would need to amend the 1065 to reflect those contributions appropriately on the K-1.

Austin Powers, CPA, QPA, ERPA

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A sole-proprietor would excute as himself, but you're correct the LLC is the appropriate entity in this case (my thinking was if it had been done in his name, it'd be easier to skip amending the 1065).

Does the proposed conclusion have sufficient merit to be defended in a tax court? I think so. The reasoning being the tax deduction in this case belongs solely to the individual so his extended due date can control for SEP timing. Fortunately 1065 just has a check box for amending and doesn't require an explanation. I do suggest discussing w/ your client that it's a slightly aggressive but merited position and let him make final decision. Oh, and have the tax preparer make a note to request the SEP amount in future years.

If anyone else reading this has an opinion or sees something we're overlooking, please speak up.

PS - after re-reading the linked thread above, the difference in scenarios is DB plan versus SEP-IRA, where the SEP-IRA gets special treatment on the partner's personal tax return.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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Under the IRC a pension plan must be established by the employer for income paid to employees, e,g., a partnership or LLC that is taxed as a pship. In this case the LLC is the employer. Pension contributions for partners of an LLC are reported on box 13, code Q of the K-1. Since the contributions must be made by the date for filing the tax return and the time filing the return cannot be extended after the return is filed I dont see how the owner can take a tax deduction for income derived from the LLC after the LLC return has been fiiled unless he has other comp from services outside the LLC.

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