Form 1065 Help! Filing for Past Years with Multi-Member LLC Losses

Thanks for the info! That penalty sounds scary - $210 per partner per month could add up to thousands for us. Do you think we'd qualify for the "first-time penalty abatement" I've read about somewhere? And for the Schedule K-1s, do we just divide the losses equally among the 4 of us, or should it be based on our operating agreement?

First-time penalty abatement (FTA) is definitely something you should request. It's specifically designed for situations like yours where you have a clean compliance history and made an honest mistake. Call the IRS or include a penalty abatement letter when filing your past-due returns explaining that you were unaware of the filing requirements for your multi-member LLC. The division of losses should be based on your operating agreement or how you've agreed to share profits and losses. If you haven't specified this, the default is usually equal shares, but this can vary by state. Check your operating agreement - if it says losses are shared equally, then yes, divide them equally on the K-1s.

How does it handle multiple years of unfiled returns? Does it just give general advice or does it actually help you prepare the forms for each specific year? Our situation is similar but we've missed 3 years of filings.

Does it actually work for penalty abatement requests? I'm skeptical because I've heard the IRS is pretty strict about accepting those, especially for partnership returns where they're trying to crack down on non-compliance.

It handles multiple years really well. You can select which tax years you need to catch up on, and it walks you through each one separately with the correct forms for that specific year. It even flags differences in requirements between tax years if there were changes in the law. The penalty abatement feature was surprisingly effective. It creates a customized letter based on your specific situation, citing the relevant IRS rules and precedents. I was skeptical too, but we got our penalties reduced significantly. The tool includes specific language that addresses the IRS's "reasonable cause" criteria and explains how your situation meets those standards. It's not just generic advice - it tailors everything to your specific circumstances.

How does this actually work? Do they just keep calling for you or something? I don't understand how they can get through when nobody else can.

This sounds like BS honestly. The IRS phone systems are notoriously impossible - I've tried calling over 20 times about my partnership issues. No way some service can magically get through when millions of people can't. What's the catch here?

They use technology that monitors the IRS phone system and identifies the optimal times to call, then they hold your place in line. When they're about to connect with an agent, you get a call and are transferred directly to the IRS representative. It's not that they have a special "back door" - they just have a system that's more efficient at navigating the regular phone queues. There's no catch - they just solved a real problem. The IRS is severely understaffed and their phone system is overwhelmed. What Claimyr does is handle the frustrating part (waiting on hold for hours) so you don't have to. I was skeptical too until I tried it and was talking to a partnership tax specialist in 38 minutes after trying unsuccessfully for weeks on my own.

We never filed any special elections - just formed the LLC with our state. I guess that means we defaulted to partnership treatment? The thing is, we do intend it to be a profit-making business eventually, we're just in the startup phase where we're developing our product and not making much yet. We've each put in maybe 5-10 hours a week, so it's definitely not just a hobby for tax purposes.

Yes, if you never filed Form 8832, then you defaulted to partnership tax treatment, which means Form 1065 filings were required. Even with the small revenue, the fact that you're spending consistent time on it (5-10 hours weekly) and have an intent to make profit would likely qualify it as a business rather than a hobby in the IRS's view. That means you definitely need to file those past-due 1065 forms, but also that each partner should be able to deduct their share of the losses on their personal returns, which could be beneficial. Make sure to document your business intention well - keep business plans, marketing materials, etc. that show you're legitimately trying to make this profitable, which helps if you're ever questioned about the business vs. hobby distinction.

Partnership returns can get complicated, especially when catching up on multiple years. While it's possible to DIY with tax software like UltraTax or Lacerte, I'd recommend at least consulting with a tax professional who has partnership experience. The forms themselves aren't super complicated for a small business, but allocating items correctly on Schedule K-1s and ensuring consistency across multiple years can be tricky. If your partnership structure is simple and your financials are straightforward, you might be able to handle it yourself after getting some guidance. But if there's any complexity (special allocations, guaranteed payments, etc.), professional help is worth the investment to avoid future headaches.

Thanks for the honest advice. Our LLC is pretty simple - just me and my brother with a 50/50 split and minimal transactions. I'll probably look into one of those tax programs but maybe pay for an hour consultation with a CPA just to make sure I'm on the right track before submitting anything.