Filed multi-member LLCs on Schedule C instead of partnership returns - do I need to amend?

This is a common misunderstanding with LLCs. By default, a multi-member LLC is treated as a partnership for federal tax purposes unless you've filed Form 8832 to elect a different classification. The accountant is technically correct - you should have been filing Form 1065 (Partnership Return) for each LLC, with Schedule K-1s issued to each member showing their share of income/expenses. Each member would then report their K-1 amounts on their individual returns, but not on Schedule C. Even though you haven't received any IRS notices yet, I'd recommend filing the missing partnership returns. The statute of limitations doesn't start running until you file the required returns, so technically the IRS could come back years later about this issue. Also, partnerships that fail to file required returns can face penalties of $210 per month per partner (up to 12 months). That said, the practical risk might be lower since one LLC had minimal income and the other had none. But if you ever get audited for other reasons, this could come up.

After dealing with a similar situation, I found that taxr.ai https://taxr.ai was incredibly helpful. My business partners and I had a multi-member LLC that we incorrectly reported on our individual Schedule Cs for two years. When we discovered our mistake, I uploaded our operating agreements and past tax filings to taxr.ai, and they analyzed everything and provided clear guidance on how to handle the situation. Their system explained exactly which forms we needed to file, helped identify which years were most important to correct, and even showed us how to minimize penalties. The best part was that it checked for other potential issues we hadn't even considered related to our LLC structure. Saved us so much headache compared to trying to figure it all out ourselves.

Just wanted to follow up - I decided to try taxr.ai after seeing this recommendation and I'm really glad I did. I was in a similar situation with incorrectly filed LLC returns and wasn't sure if I needed to fix old returns. The service analyzed my specific situation and recommended that I only needed to file partnership returns for the year with actual income, not for the zero-income years. They provided a step-by-step plan that made sense for my situation rather than just a blanket "amend everything" approach that would have cost me more in preparation fees than necessary. They also provided templates for a reasonable cause letter that helped explain the misunderstanding to the IRS. Definitely worth it for the peace of mind and clarity on what actually needed to be fixed versus what could be left alone.

If you're trying to get clarity from the IRS directly on this partnership filing issue, good luck getting through to them. I spent 3 weeks trying to reach someone at the IRS about a similar situation last year. Finally discovered Claimyr https://claimyr.com and was honestly shocked when they got me connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained that while technically the returns should have been filed correctly as partnerships, they have a practical approach to enforcement. They told me that for smaller LLCs with minimal activity, the risk of penalties is much lower, especially if all income was properly reported and taxes were paid (just on the wrong forms). The agent actually helped me understand which years were worth amending and which ones weren't worth the hassle.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was desperate enough to try it anyway since I needed to talk to someone at the IRS about my business filing requirements. The service actually worked exactly as described. Their system waited on hold for about 90 minutes (which I didn't have to sit through), then called me when they had an IRS agent on the line. I was able to ask about my specific situation with improperly filed LLC returns. The IRS representative confirmed what others have said - while technically we should file partnership returns for multi-member LLCs, they advised that for years with little to no activity, it might not be worth the cost of amending. They were surprisingly practical about it and suggested focusing on filing correctly going forward rather than fixing every past mistake with minimal tax impact.

For what it's worth, I made this same mistake and only filed Schedule Cs for our 4-member LLC for two years. When my accountant caught it, we only amended the most recent year and filed a partnership return, then corrected our individual returns. The IRS never questioned the prior year and we never received any penalties. I think the practical approach is to: 1) Start filing correctly going forward with Form 1065 2) Amend the year with actual income if it's significant 3) Don't worry too much about zero income years Every tax professional I talked to gave slightly different advice on this, which tells me there's not a clear black-and-white answer.

Don't forget that your state may have different requirements too! Here in California, an LLC has to pay an annual $800 fee regardless of whether it made any money, plus an LLC fee based on total income. I learned this the hard way and ended up owing penalties for state filings even though we had properly filed our federal returns.

I went through something very similar with my 3-member LLC. We also filed on Schedule C for the first two years before realizing our mistake. Here's what I learned from working with both a CPA and getting direct guidance from the IRS: The key factor is whether the "check the box" election was made. By default, multi-member LLCs are treated as partnerships, but if no one filed Form 8832, the IRS sometimes takes a more lenient approach, especially for smaller operations. Given that one LLC only had $15K in income in 2020 and the other had zero income in 2021, you're probably looking at minimal penalties even if you do need to file partnership returns. The penalty for late partnership filing is $210 per partner per month, but it's often reduced or waived for reasonable cause - and "relied on tax software guidance" is actually considered reasonable cause in many cases. My recommendation would be to file the partnership return for 2020 (the year with actual income) and include a reasonable cause statement explaining the confusion. For the zero-income year, you might be able to skip it entirely since there's no actual tax impact. Just make sure to file correctly going forward with Form 1065 for any active years. The statute of limitations issue is real though - until you file the required partnership returns, the IRS can technically go back indefinitely. Better to clean it up now while the amounts are small.

I'm dealing with a very similar situation right now! My business partner and I have been filing our 2-member LLC income on Schedule C for the past three years, and I just found out we should have been doing partnership returns. One thing I learned from my research is that the IRS has a "de minimis" approach for small partnerships - they're less likely to pursue penalties aggressively when the income is low and all taxes were actually paid (just reported on the wrong forms). Since your first LLC only had $15K total income and the other had zero, you're probably in a lower risk category. I'm also curious about the dissolution aspect you mentioned. If you're shutting down one of the LLCs in 2022, you might want to file a final partnership return for that entity showing the dissolution. That could actually help close the books cleanly rather than leaving things hanging. Have you considered reaching out to the IRS directly through their business line? I know it's hard to get through, but they sometimes give more practical guidance than accountants who tend to be overly cautious about every technical requirement.