LLC owning LLC

[HomeMike]

My wife and I own a very small LLC in Florida. This LLC formed a new LLC. When I wanted to get an EIN for the new LLC, the IRS online system didn't allow me to do so online.

I called in and they told me I have to do it in writing. So I applied via fax. I gave a detailed explanation that our LLC is the only member of the new LLC.

I now got the letter with the EIN from the IRS. It has the new LLC and in the address also says my name and behind it "Sole MBR". I called in and told them that I personally am not the sole member of the new LLC. However they told me that they do not allow the LLC to be the designated party anymore.

Honestly I do not understand. How can the IRS change our structure?

So, to explain differently:

Me (John Doe) and my wife own "First LLC." "First LLC" formed "Second LLC."
I am the manager of "Second LLC."

The letter from the IRS says:

Second LLC
John Doe Sole MBR
Street
City, State ZIP

I am very scared that by accepting this I am changing the legal structure and become personally liable.

Thank you very much for your help

 

[Taxing Matters]

I am very scared that by accepting this I am changing the legal structure and become personally liable.

This has nothing to do with the legal structure. That's determined by the law of the state(s) in which the LLCs are organized. This is simply about getting a EIN for the new LLC (and it may not even need one). The top tier LLC is by default regarded for tax purposes as a partnership. The lower tier LLC is for tax purposes disregarded because the upper tier LLC is its sole member. While the IRS should get it right on the EIN application so that it knows what forms to expect to be filed for the LLC, this isn't going to affect anything of substance here.

 

[HomeMike]

Thanks!

Should I request a correction?

 

[Taxing Matters]

Thanks!

Should I request a correction?

I would just so that you avoid potential hassles about what forms to file later, but it's not strictly speaking necessary.

 

[HomeMike]

Thank you, I wrote a letter.

Can you explain what forms should be used?

 

[davew9128]

Thank you, I wrote a letter.

Can you explain what forms should be used?

Based on your facts, the new LLC doesn't file anything with IRS.

 

[Taxing Matters]

Thank you, I wrote a letter.

Can you explain what forms should be used?

What forms should be used for what? Are you asking about income tax filings, employment tax filings, or something else?

 

[HomeMike]

We are very small. Will not have employees. Only a property. Just trying to understand what LLC needs to find and what LLC not. Income tax etc.

 

[Taxing Matters]

We are very small. Will not have employees. Only a property. Just trying to understand what LLC needs to find and what LLC not. Income tax etc.

Then for federal income tax the LLC that you and your wife own would file a partnership return (Form 1065) reporting all the income and deductions for both LLCs combined. That income then transfers to your personal income tax returns which is where any tax on that income will be ported and paid. The subsidiary LLC would be disregarded for federal tax purposes and will not file any thing.

 

[HomeMike]

Thank you! You are amazing!

 

[LdiJ]

We are very small. Will not have employees. Only a property. Just trying to understand what LLC needs to find and what LLC not. Income tax etc.

You do realize of course that a reasonably inexpensive liability insurance policy would probably cover you more effectively for liability than an LLC would protect you? Go the route of double LLCs for just a single property, is a bit of an overkill. You might even be able to buy the liability insurance policy for less than the cost of filing information returns annually for the two LLCs.

 

[HomeMike]

We have a liability insurance policy. They extra LLC is a bank requirement.

 

[LdiJ]

We have a liability insurance policy. They extra LLC is a bank requirement.

Has the bank given you any reason for requiring ANY LLC, let alone a double LLC situation? Generally banks would prefer personal guarantees which would negate any value in having an LLC.

 

[HomeMike]

It is a strict requirement for our loan type. It is a CMBS loan. They can not change the rules as the loan gets bundled and sold.