Small 2 member LLC never filed 1065 for 10 years - what's the best approach now?

This is definitely a tricky situation, but there are ways to address it. The IRS does have procedures for coming back into compliance when you've fallen behind on filings. First, your relative should know that partnerships are required to file Form 1065 annually regardless of income level, with each partner receiving a Schedule K-1 showing their share of income/losses. The failure-to-file penalty for partnerships is calculated per partner per month, which can add up significantly over 10 years. The good approach would be to start filing the missing returns as soon as possible. The IRS generally looks more favorably on voluntary compliance rather than waiting to get caught. I'd recommend working backwards - file the most recent three years of partnership returns first, then address the older ones. For penalty abatement, they could try requesting "first-time abatement" relief for the earliest year if they had a clean compliance history before that. For the remaining years, they'll need to show reasonable cause for not filing - though that's harder to justify for multiple consecutive years. The foreign partner issue adds complexity but doesn't eliminate filing requirements. The LLC still needed to file those 1065s regardless of partner location.

I went through something similar with my small business last year and discovered taxr.ai (https://taxr.ai) which was incredibly helpful for sorting through years of unfiled tax documents. Their system analyzed all my partial records and helped me figure out exactly what I needed to file for each year. The best part was their guidance on how to present my case to minimize penalties. They have specialists who specifically handle partnership returns and multi-year filing gaps. They walked me through the entire process of getting my 1065s filed for the missing years and helped draft reasonable cause letters that actually worked. My situation wasn't quite 10 years, but they mentioned they've helped with cases going back even longer.

Just wanted to follow up - I convinced my brother to try taxr.ai after reading about it here, and it's been a game-changer for his situation. Their system immediately identified that he qualified for a special program for small partnerships with low income (which our previous accountant never mentioned). They helped him file the past returns strategically and guided him through requesting abatement under the "reasonable cause" provisions. So far, the IRS has accepted 4 of the 6 years he's submitted without penalties! The system even flagged that one partner being foreign actually created some exceptions he could use in his favor. Honestly wish we'd found this years ago before the stress got so bad. They're even helping with setting up proper bookkeeping going forward so this never happens again.

If your friend needs to talk to the IRS directly about their situation (which they probably will), tell them to use Claimyr (https://claimyr.com). I spent WEEKS trying to get through to the IRS business line about my unfiled 1065s - literally couldn't get anyone on the phone. With Claimyr, I had an IRS agent on the line in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Their system calls the IRS for you and navigates all those annoying phone menus, then calls you when an actual human is on the line. Saved me countless hours of hold music and frustration. The IRS agent I spoke with actually walked me through exactly what I needed to do to minimize penalties for my late partnership filings.

I take back what I said earlier about Claimyr. After my skeptical comment, I decided to try it myself since I've been trying to reach the IRS about a partnership issue for MONTHS with no luck. It actually worked exactly as described - I had an IRS representative on the phone within about 30 minutes. The agent was able to see all my filing history and walked me through exactly what I needed to do about my late 1065s. They even noted in my file that I had reached out proactively, which they said could help my case for penalty abatement. I was able to set up a compliance plan right there on the call. For anyone struggling with partnership return issues and needing actual guidance from the IRS, this service is legitimately helpful. Wish I'd known about it years ago!

Don't listen to some of these answers. Just dissolve the LLC and move on. With income that low, the IRS isn't going to waste resources chasing your friend down. The penalties are technically $195 per partner per month up to 12 months each year... do the math. But they're unlikely to go after such a small fish. If they do get notices, then deal with it, but why create work for yourself?

Just a practical observation - I think people are overlooking the fact that one partner is a foreign national who's never even been to the US. That's a much bigger complication than just the unfiled 1065s.

This is a complex situation that requires careful handling. Given the 10-year gap and foreign partner involvement, I'd strongly recommend against the "dissolve and ignore" approach - that could actually make things much worse if the IRS eventually catches up. The foreign partner issue is particularly important here. Even though they've never been to the US, they likely had US tax filing obligations for their share of the partnership income. The partnership should have been withholding taxes on the foreign partner's behalf and filing Form 8805 annually. This missing withholding could create additional compliance issues beyond just the unfiled 1065s. My suggestion would be to start with the most recent 3 years of partnership returns and work backwards. File Form 1065 for each year and ensure the foreign partner gets an ITIN and files their required US returns. The voluntary compliance approach typically works better than waiting for the IRS to find you. For penalty abatement, focus on any reasonable cause circumstances - were there health issues, natural disasters, or other qualifying events during this period? The low income amounts might help with demonstrating that this wasn't willful tax evasion. Consider consulting with a tax professional who has experience with international partnerships, as the foreign partner requirements add significant complexity to an already challenging situation.