Tax Question: How to File Returns for 2 Single Member LLCs Owned by a Multi Member LLC

Thanks for the explanation! Quick follow-up: would we need to file any special forms or attachments to the 1065 to show that these activities are technically happening in separate legal entities? Or does the IRS not care about that distinction for tax purposes?

The IRS doesn't require specific forms or attachments to indicate the separate legal entities in this case. Since the Single Member LLCs are disregarded for federal tax purposes, you don't need to explicitly identify them on the 1065. However, it's good practice to maintain clear internal records showing which income and expenses belong to which entity. This makes state filings easier (some states may have different requirements) and helps with accurate business reporting for management purposes.

How exactly does this work? I've got a similar setup (holding LLC with 3 separate SMLLCs for different properties) and my CPA keeps telling me we need separate filings for each. Would this actually help me prove him wrong?

I'm skeptical of any AI tax tools... do they actually handle complex business structures like this? My business has evolved over time and now we have a mess of entities. Would it actually understand the relationships between them?

The tool works by analyzing your specific business structure and applying current tax regulations. You upload basic information about your entities, their relationships, and ownership percentages, and it provides guidance based on IRS rules. Many CPAs still recommend separate filings because it's what they're used to, but the rules for disregarded entities are clear. For complex business structures that have evolved over time, that's actually where I found it most helpful. It maps out the entity relationships and shows exactly which require separate returns versus which can be consolidated. It can handle partnerships, S-corps, C-corps, and various LLC structures, showing how they interact from a tax perspective.

How does this actually work? I've been trying to reach the IRS for 3 weeks about a similar issue. Are they just bots that keep dialing until they get through? Or is this some kind of premium IRS line?

Sorry, but this sounds too good to be true. I've tried EVERYTHING to get through to the IRS, even calling at 7:01am when they open. You're telling me some service can magically get through when millions of people can't?

It's not a bot system - they use actual people and a strategic calling system. They basically handle the waiting and calling for you, then alert you when they've reached an agent. It's not a premium IRS line - they're getting through to the same lines we all try to call, but they have technology that navigates the phone tree and stays on hold so you don't have to. No magic involved - just a smarter approach to the problem. I was skeptical too until I used it. Think of it like having a dedicated assistant whose only job is to keep calling and navigating the IRS phone system until they get through. The notification when they connect you is what makes it work - you're not tied to your phone for hours.

Do you also file separate Schedule Cs for each SMLLC or just combine everything? Our accountant is giving us mixed messages and now I'm confused about how to properly document everything.

You don't file Schedule Cs at all in this situation. Schedule C is used for sole proprietorships, not partnerships. Since the holding company is a multi-member LLC, you'll file Form 1065 (Partnership Return), which will include all income and expenses from the disregarded SMLLCs. On the Form 1065, you consolidate all activities from the SMLLCs - there's no separate schedule or form to distinguish between them. That's why good bookkeeping with separate accounts is so important even though tax filing is consolidated. It keeps your internal reporting clear while simplifying your tax filing.

Which states have you found to be particularly problematic with this structure? We're expanding to a few new states next year and I'm trying to plan ahead.

Great question! For the 1065 filing, you typically don't need to separate the income and expenses by individual SMLLC - it all gets consolidated as partnership income and expenses. The IRS doesn't require you to distinguish between which disregarded entity generated what income on the tax return itself. However, if your residential and commercial activities are significantly different types of business operations, you might want to consider whether they should be reported under different business activity codes or if any special industry-specific forms apply. But for most construction businesses doing both residential and commercial work, it would all flow through the standard partnership income/expense lines. The key is maintaining good internal records (which it sounds like you're already doing) so you can track profitability by division for business management purposes, even though tax reporting is simplified into one return.

I'm so glad this thread helped clarify things for you! I was in almost the exact same situation a few months ago with my property management business - multi-member LLC with three SMLLCs for different property types. The conflicting advice from different accountants was driving me crazy too. One thing I learned through this process is that many accountants default to the "safer" approach of separate filings because they're not as familiar with disregarded entity rules, especially when it comes to more complex structures. But the IRS guidance is actually pretty clear once you dig into it. Your setup with separate banking is perfect - it'll make that consolidated 1065 so much easier to prepare and will keep you organized if you ever need to provide documentation to the IRS or for any business purposes. Best of luck with your filing!