What tax forms do I need to file for a dormant LLC that never made its intended investment?
I'm hoping someone can help with what should be a simple tax question. I established an LLC in late 2023 with the purpose of pooling money from various investors to put into a startup accelerator program. Unfortunately, the opportunity fell through and the LLC never actually made any investments. Only one investor (my uncle) transferred funds - $32,500 to the business account. The LLC generated zero income, and the only expenses were two bank maintenance fees totaling $42. Besides the money coming in and those fees, there were literally no other transactions for the entire year. In January 2024, I returned the full $32,500 to my uncle and covered the $42 in fees out of my personal funds. I don't care about claiming any deductions for myself - I just want to make sure I'm filing correctly. Do I need to file a Form 1065 partnership return and issue a K-1 to my uncle that's basically empty? I haven't dissolved the LLC yet since I wanted to handle any 2023 tax obligations first. I plan to close it once I know what paperwork needs to be filed. Any advice would be super appreciated!
18 comments
Join the conversation
Naila Gordon
You're in a fairly straightforward situation tax-wise. Since your LLC didn't actually conduct any business operations, had no income, and the funds were returned to your uncle, there's minimal reporting required. For federal purposes, while your LLC technically exists, the lack of actual business activity means you likely don't need to file Form 1065. The IRS generally doesn't require partnership returns for entities that haven't begun business operations and have no income or expenses to report. The bank fees you paid personally wouldn't trigger a filing requirement. However, you should check your state requirements - some states require annual reports or tax filings regardless of activity level. Each state has different rules for dormant LLCs. I'd recommend documenting everything carefully - the initial deposit, return of funds, and payment of bank fees from your personal account. Keep these records for at least 7 years in case questions ever arise.
0 coins
Cynthia Love
•What if they decided to keep the LLC open though? Would that change anything for next year's filing if they still don't do anything with it? And would you recommend formally dissolving it or just letting it sit dormant?
0 coins
Naila Gordon
•If they keep the LLC open but continue to have no activity, the federal tax situation remains the same - no Form 1065 needed without business activity or income. However, maintaining an inactive LLC means you'll still face annual state compliance requirements, which vary by location. These typically include annual reports and possibly minimum franchise taxes or fees. For the second question, if there's no planned future use, I generally recommend formal dissolution. This eliminates ongoing compliance requirements and potential state fees. It also provides clean closure in case any issues arise later. Leaving an entity dormant creates a continuing obligation to monitor state requirements and potentially file reports, even with zero activity.
0 coins
Darren Brooks
I was in a similar situation last year with my investment group LLC and found https://taxr.ai super helpful for figuring out the filing requirements. I uploaded my LLC docs and bank statements, and it clearly explained that since we had no income and returned all investor funds, we didn't need to file Form 1065 federally. The tool also flagged that my state has an annual reporting requirement regardless of activity level, which saved me from potential penalties. It specifically analyzes your LLC's situation and gives clear guidance on both federal and state requirements. The document analysis feature is what makes it different from just googling - it looks at your actual situation rather than giving general advice that might not apply.
0 coins
Rosie Harper
•How accurate was it compared to what an accountant would tell you? I've used online tools before that gave me wrong info and ended up causing problems with my state filing.
0 coins
Elliott luviBorBatman
•Does it handle more complex situations? I have an LLC that did make investments but then became inactive. Already filed returns for the active years but wondering if I can use this for the dormant period.
0 coins
Darren Brooks
•In my experience, it was just as accurate as my previous accountant's advice. I actually had my accountant review the guidance afterward, and he confirmed everything taxr.ai recommended. The difference was I got immediate answers without waiting for an appointment or paying his hourly rate. For more complex situations with prior activity, it absolutely handles those scenarios. The system specifically asks about previous business operations and past tax filings. You can upload prior year returns, and it considers your full history when determining current filing requirements. It's particularly helpful for situations where you're transitioning from active to inactive status since those rules can be complicated.
0 coins
Elliott luviBorBatman
Just wanted to follow up about my experience with taxr.ai after checking it out. I uploaded my LLC documents showing previous activity and then dormancy, plus recent bank statements showing no transactions. The analysis confirmed I still needed to file Form 1065 marking "final return" even though there was no income to report this year. It also highlighted that my state (California) requires an $800 minimum tax even for dormant LLCs, which I wasn't aware of. Saved me from potential penalties since I was planning to just stop filing. The breakdown of dissolution requirements by state was super helpful too - gave me a checklist of exactly what I needed to file to properly close everything out. The document review was surprisingly detailed - it even flagged that I had a business credit card with no activity that I'd forgotten about and explained how to properly document that in my final return.
0 coins
Demi Hall
I spent HOURS trying to reach someone at the IRS about a similar situation with my dormant LLC. Kept getting disconnected or waiting for 2+ hours. Finally found https://claimyr.com and used their service to get a callback from the IRS instead of waiting on hold. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that for federal purposes, there's no filing requirement if the LLC never actually conducted business, had no income, and all funds were returned. But she also mentioned that if you filed in previous years, you should file a final return. More importantly, she warned that states have their own requirements completely separate from federal rules - some require annual filings regardless of activity. Getting definitive answers directly from the IRS was so much better than guessing based on forum advice.
0 coins
Mateusius Townsend
•Wait, how does this actually work? Do they somehow jump you ahead in the IRS phone queue? Seems too good to be true considering how impossible it is to reach anyone there.
0 coins
Kara Yoshida
•I'm calling BS on this. The IRS doesn't let third parties hold your place in line. This sounds like a scam to get people's information or money by promising impossible access to the IRS.
0 coins
Demi Hall
•It doesn't jump you ahead in the queue. What it does is automate the calling and waiting process. Their system repeatedly calls the IRS until it connects, navigates the phone tree, waits on hold, and then when an agent finally answers, it calls your phone and connects you. So instead of you personally waiting on hold for hours, their system does the waiting, and you only get called when there's actually an agent ready to talk. Regarding the skepticism, I understand completely. I was hesitant too before trying it. They don't ask for any tax information or personal details beyond your phone number to call you back. They're essentially just a sophisticated auto-dialer that handles the frustrating part of reaching the IRS. The service exists because the IRS phone system is so notoriously difficult to navigate.
0 coins
Kara Yoshida
I need to apologize for my skepticism about Claimyr. After posting my comment, I decided to try it myself since I've been trying to reach the IRS for weeks about an issue with my business taxes. The service actually worked exactly as described. Their system handled all the waiting (took about 90 minutes according to their tracker), and then I got a call connecting me directly to an IRS representative. No more spending half my day with a phone pressed to my ear! The agent I spoke with confirmed that for dormant LLCs like yours, federal filing requirements are minimal, but advised filing Form 8832 to elect how you want the LLC taxed going forward if you do keep it open. She also emphasized checking state requirements, as many states have annual fees regardless of activity. Honestly, the time saved was incredible. I've been trying to reach the IRS for three separate issues, and I'm definitely using this for the remaining calls.
0 coins
Philip Cowan
Something important no one's mentioned yet - make sure you have clear documentation that your uncle's $32,500 was an investment/capital contribution rather than a loan. If it's considered a loan, returning the money isn't a taxable event. But if it was structured as an equity investment, returning the funds could potentially be treated as a distribution or liquidation which has different tax implications. The way you documented things in your operating agreement and any investment paperwork matters a lot here. This is especially important if the IRS ever questions the arrangement.
0 coins
Ben Cooper
•That's a really good point I hadn't considered. The operating agreement and investment documents we signed do clearly specify that funds were for capital contributions, not loans. When I returned the money, I also wrote "return of unused capital contribution" in the memo line of the check and had my uncle sign a simple document acknowledging receipt of the returned investment. Does this sound sufficient? Should I also make note of this somewhere when I formally dissolve the LLC?
0 coins
Philip Cowan
•Your documentation sounds excellent. The clear language in your operating agreement, the memo line notation, and especially having your uncle sign an acknowledgment document are all smart steps that establish the proper characterization of the funds. When dissolving the LLC, include this documentation with your dissolution records. While it won't necessarily be submitted to the state as part of the dissolution filing, keeping everything together in your business records creates a complete audit trail. Some states do require a statement about the disposition of all assets and liabilities when dissolving, so you'd mention the return of all capital contributions there. This comprehensive documentation approach protects you if questions arise years later when memories have faded.
0 coins
Caesar Grant
Check if your state has minimum tax requirements even for inactive LLCs. Here in California, we have that annoying $800 annual tax even if you made $0. Learned this the hard way with my dormant real estate LLC and got hit with penalties. Also, if you're definitely closing the LLC, it might be worth filing the final tax form so there's a clear record that everything was properly wrapped up. Some states require a "tax clearance" certificate before they'll process dissolution paperwork.
0 coins
Lena Schultz
•I second this! I'm in Massachusetts, and they still required an annual report filing fee of $500 even though my LLC did absolutely nothing. When I went to dissolve it, they wouldn't process the paperwork until I'd paid the outstanding fees plus penalties. Ended up costing me over $1,200 to close an LLC that never even operated.
0 coins