Question

Cloud Rider LLC has about 30 LLC members. Enyfs, Inc. (25% owner) and Nest, Inc. (21% owner) both have June 30 tax year ends. Brom, Inc.; Titus, Inc.; and Gerrera, Inc. each own 4% (12% total) and have September 31 taxable year ends. The other members (42% total) each own interests of 4% or less and use the calendar year (December 31). What is the tax year the partnership must use and why?

Answer 1

The partnership must use June 30 as the tax year. Because, in case of LLC, the taxyear of the member's who own, in the aggregate, more than 50% of the interests in the capital, will be the taxyear of partnership. But, here none of the members', with similar taxyear, own 50% of the interest.in aggregate.So, will go by the second rule, which says that tax year of Principal members will be used. Principal members are those owning 5% or more of the capital or profits.

Here Enyfs, Inc and Nest Inc both have same tax year ends on June 30 and they both own 5% or more (Enyfs 25% and Nest 21%) of the capital or profits. So, we will take their tax year June 30 as the tax year of partnership.