Here’s what HIVE AI had to say about “How do I handle taxes for multi-member LLCs?”:

Taxes for Multi‑Member LLCs (MMLLCs)

Federal tax classification and the default rule

• By default, a domestic LLC with more than one owner is treated as a partnership for federal income tax purposes and files Form 1065. Members receive Schedules K‑1 reporting their distributive shares of income, deductions, credits, etc. 1
• The IRS generally treats LLCs as corporations only if the entity makes an affirmative election (see below). 2

Electing corporate or S corporation taxation

Elect to be taxed as a C corporation

• An MMLLC may file Form 8832 to be classified as an “association taxable as a corporation” and then file Form 1120. Without this election, an MMLLC remains a partnership by default. 3
• The 1120 instructions confirm LLCs file 1120 only if they elected corporate treatment. 1

S corporation option

• An LLC that has elected corporate status may be eligible to file as an S corporation (Form 1120‑S), subject to S‑corp eligibility rules and elections described in the 1120‑S instructions. 2

What gets filed and where income is taxed

If taxed as a partnership (default)

• The LLC files Form 1065; items pass through to members via K‑1 and are reported on each member’s return. Failure to file Form 1065 can trigger penalties; the IRS has addressed relief requests where a multi‑member LLC missed a Form 1065 filing due to misclassification. 4
• Income tax on business results is generally paid at the member level; the entity itself is an information filer for income tax purposes. 5

If taxed as a corporation

• The LLC pays entity‑level corporate income tax and files Form 1120. Members are treated similarly to corporate shareholders; the IRS would not file a tax lien against members for the LLC’s corporate income tax. 5

Employment and payroll tax considerations

• Regardless of income tax classification, an LLC with employees is the employer for payroll tax purposes and must handle Forms 941/940 and related deposits. For an MMLLC taxed as a partnership, the entity can incur employment tax liabilities in its own name. 5
• The IRS may assess the trust fund recovery penalty under IRC § 6672 against any responsible person (which could include an LLC member) who willfully fails to collect, account for, and pay over trust fund taxes. 5

Partnership audit regime (BBA)

• Partnerships (including default‑taxed MMLLCs filing Form 1065) are generally subject to the centralized partnership audit regime under the Bipartisan Budget Act of 2015. The treatment of pass‑through items is determined at the member level, even though partnership adjustments are handled under the BBA framework. 6

Changes in membership and tax classification events

From single‑member to multi‑member

• When a disregarded single‑member LLC adds a member (e.g., another person purchases a 50% interest), it becomes a partnership for tax purposes. The transaction is treated as the new member buying a share of each underlying asset directly from the original owner. 7

From multi‑member to single‑member

• If one member buys out all other members, the partnership terminates for tax purposes. The transaction is treated as a deemed liquidating distribution to the members followed by an acquisition of assets by the remaining owner. 7

Practical compliance checklist

If you are taxed as a partnership

• Obtain/maintain an EIN for the LLC as the filing entity
• File Form 1065 annually and issue Schedules K‑1 to members
• Maintain capital accounts and allocate items under the operating agreement and tax rules
• Handle payroll tax filings and deposits for employees
• Be prepared for the BBA partnership audit rules (e.g., designate a partnership representative) 6 1 5

If you elect corporate taxation

• File Form 8832 to elect corporate status, then file Form 1120 thereafter
• Consider whether S corporation status is desired and available (see 1120‑S instructions)
• Observe corporate‑level payroll and income tax compliance; members are not the taxpayers for corporate income tax 3 1 5

Common pitfalls to avoid

• Assuming a multi‑member LLC does not need to file Form 1065; the IRS has denied that assumption and penalties can apply if you miss the filing. 4
• Ignoring employment tax obligations; even pass‑through LLCs can accrue entity‑level payroll liabilities, and responsible persons risk trust fund penalties. 5
• Overlooking classification changes when owners enter or exit; these events can trigger deemed asset transactions and different reporting. 7 7

Where to read more

• IRS Topic No. 407 (LLCs) and Pub. 3402 provide overviews of how LLCs are taxed and how owner changes affect classification and reporting. 2 7 7

If you share your state, number and types of owners, and whether you have employees, I can tailor the specific filing list, deadlines, and planning options for your situation.

Sources

1 – IRS – Instruction 1120 Instructions for Form 1120, U.S. Corporation Income Tax Return 📄 Summarize
2 – IRS.gov Tax Topics 📄 Summarize
3 – CCA 201447025 📄 Summarize
4 – PLR 202345007 📄 Summarize
5 – CCA 200235023 📄 Summarize
6 – IRS.gov – Powers of attorney for LLCs 📄 Summarize
7 – IRS – Publication 3402 Taxation of Limited Liability Companies 📄 Summarize

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