Can IRS 1065 for multi member LLC be a DIY ?

Question

Hello All,

I have set up multiple member LLC's for my SFH rental's and would like to know your thoughts on filing IRS form 1065 and obtain K1's yourself. Is it mandatory to go through a CPA ? Please share your experiences.

Greg O'Brien · Answer

@Patrick J. You really can’t forgoe tracking inside/outside basis and then exit a partnership or sell assets someday. Yes, a lot screw it up or ignore it though! The law requires basis tracking for Sch L filers

Michael Plaks · Answer

@V Krishna

Almost anything could be DIY-ed today. It comes down to two questions.

1. Do you have time to invest in learning how to do it? With some effort, you can learn how to half-a$$ it. To be honest, many tax preparers will do likewise. As my colleagues mentioned, the technical complexity of doing it correctly is pretty high, and not everybody bothers, even the professionals. Those who do it right will usually charge accordingly.

2. What are the consequences of messing it up? As long as your operation is fairly straightforward and everything is truly split 50/50, you will usually arrive to the same bottom line result with a shortcut/incomplete partnership tax return as with the one done professionally. (Assuming you learned the basics correctly.) It will likely be missing some pieces and have some of them completed incorrectly, but it will unlikely to be challenged by the IRS and cause real trouble.

However, if you close the partnership or if you and your partner(s) are contributing differently and pulling money out differently - then you will likely have incorrect tax results for each for you. It may result in paying less tax than you're supposed to or more tax than you're supposed to. And, if you hire a CPA later on to fix the mess, it will cost you significantly more than if you were doing it right from day one.

Bottom line: many investors DIY these returns, get them wrong and get away with it. Your call which way you want to go.

Patrick J. · Answer

@Greg O'Brien

Many people probably dont report assets they sell when closing their business. Not sure what the tax implications are though since they'd be selling it less than what they bought it for.

Patrick J. · Answer

@Ashish Acharya

Do people even track contributions, distributions and cost basis in your experience?? I feel most lower tier partnerships just go income, expenses and then slit the profits 50/50 to the K1.

Aaron Zimmerman · Answer

I would argue that the bookkeeping is the easiest part. The 1065 has become increasingly complicated. For example, you must show the partner's capital on a tax basis this year (not a previous requirement). This may prove difficult for some investors to come up with this. Most CPAs don't charge an insanely high amount. Plus, it is a deduction for the partnership, so you're not eating 100% of the cost as it's a deductible expense. It is best to get things right in year one than to come to an accountant years later.

Eamonn McElroy · Answer

In my professional opinion, 1065s are no longer DIYable.

Too many landmines, too many esoteric tax elections.  Subchapter K is incredibly complex.

If you don't have the scale to pay a competent CPA to prepare the returns annually, and to pay a bookkeeper for the full suite of books -- P&L, balance sheet, and general ledger -- you should avoid creating partnership tax entities.

Ashish Acharya · Answer

Not mandatory.

However, I have seen 99% do it wrong as you have to properly track contributions/distribution, most of the basic tax elections are missing, and others.

It’s more expensive to fix it later vs doing it right since the beginning.

Can IRS 1065 for multi member LLC be a DIY ?

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