Tax Structure for Multi-Member LLC investing through syndication

[Andy J.]

Hi

Me & my partners created a multi-member LLC (lets called it LLC-X) taxed as partnership to invest in a multi family commercial prop via a syndication. We all have equal shares. The multi family unit itself is held under a parent LLC (lets call it LLC-Y). We're told that LLC-Y will be issuing a schedule K-1 for LLC-X for tax purposes.

I'm trying to understand what would be the tax framework in this situation. 

1) Would we first have to file Form 1065/Schedule K-1 of our own for LLC-X with the IRS by March 15? Or can we just re-use the Schedule K-1 issued by LLC-Y instead.

2) Then at tax time we'd file business returns using Schedule E for LLC-X based on the Schedule K-1 from #1

3) And then include details of the same on our personal tax returns

Did I get that right? I've tried to discuss this with a local CPA, but couldn't really get the process articulated well

[Brian Burke]

@Michael Le is right—if your CPA can’t answer this question you need a different CPA. I’m not a CPA nor a tax expert, but I’ve done what you are doing many times so I can articulate this from experience (with the caveat to seek professional advice and not rely on anything I say).  This answer assumes that both LLCs have elected to be taxed like a partnership.  If they elect to be taxed like a corporation the answer would be different (but that I haven’t done so I can’t opine on that).

LLC-Y will file a 1065 (a partnership return) and issue a K-1 to LLC-X. LLC-X will then file a 1065 (either on time or late with an extension if the K-1 wasn't received with enough time) and issue K-1s to the members (you and your partners). You all would then include the income on your personal returns based on the numbers on your K-1s.

That’s why LLCs taxed as a partnership are often called “pass through” entities—because the income passes through to your personal tax return.