Tax Rules for Properties Owned by an LLC

This has been a confusing subject for most, thanks to the complicated IRS rules.  Here is the simple explanation of what you as a property manager must do when you issue a 1099 to an LLC:

  1. Always have a W-9 on file. Make sure it is signed and dated.
  2. Have a copy of the operating agreement of the LLC on file.  You will see why that is important as you continue to read.
  3. A LLC is considered a disregarded entity by the IRS.  You will note that the W-9 asks for the name of the owner of the LLC on the first line and then the name of the LLC on the second line.  If it is a single member LLC (which can be determined by looking at the operating agreement to see how many members are in the LLC), in the majority of cases, you must 1099 the owner and use the Social Security number of the owner. You would not issue a 1099 in the name of the LLC or use the EIN of the LLC.  *The only time you would issue a 1099 in the name of a single member LLC is if the person checked off the Corporation or S-Corporation tax status box on the W-9.* This is important!  The IRS will fine you $100.00 for every 1099 you issue in the name and EIN of an LLC when it should have been in the name and Social security number of the owner.
  4. If the operating agreement shows more than two members, then it is automatically a LLC taxed as a partnership.  You can issue the 1099 in the name of the LLC and use the EIN number of the LLC.  The W-9 should show the partnership box checked off under Limited Liability Company.

As mentioned, always have a signed and dated W-9 on file from your owner. It is not valid unless it is signed and dated.  If you are fined by the IRS for not providing a correct name, social security number or EIN number, you will need to provide the signed/dated W-9 document as proof of what you relied on for your information.  You will be able to have the penalty abated with this proof (Some owners have forms on file without signatures or dates and the IRS will not accept these).  You will also need to send your owner a warning letter that they must provide you with the correct information within 30 days or you will begin backup withholding.
Richard Hart - Hart & Associates - Tax Prepartion, Consulting & IRS Audit Representation for Property Management Companies

Richard Hart EA, CAA
Hart & Associates
Offices in Las Vegas NV, Manhattan NY and Beverly Hills CA


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