Single Member LLC is not an Individual

I probably get at least two or three small partnerships each year that file their tax returns late due to various reasons.  The penalty for filing a partnership tax return late can get very steep very fast.  It is about $200 per month per partner that the return is late up to a maximum of 12 months.

For example, assume you have a partnership with 5 partners and they are five months late in filing the return.  The penalty in this case is almost $5,000.

A way to abate the penalty is to be a qualified small partnership.  This involves having 10 or fewer individual partners who all timely report the partnership income on their tax return.  A recent ruling from the IRS indicated that a single member LLC is not an “individual”.  Normally, a single member LLC is ignored for income tax purposes and you would assume since it is ignored, that the “individual” would count in this case.  However, the IRS ruled otherwise.

Therefore, if you own a partnership interest via a single-member LLC make sure to file the tax return timely.  Otherwise, it can cost you and your partners some money.

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  • CliftonLarsonAllen
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Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives a combine each summer for his cousins and that is what he considers a vacation.


Ed Zollars wrote a short article about the ruling that the author of this blog refers to –

Ed Zollars wrote a short article about the ruling that the author of this blog refers to –

This Agribusiness blog is excellent –

Paul, Is there a site that I can review your blogs on structuring farm operations. I have followed your daily briefing for more than five years. I have farm clients that are expanding operation and will use LLCs and possibility a Partnership to host the LLC’s. I would like to research items which should be considered in setting up the expanded operation. Andy or other members of your firm may also have sites of publications with relevant information. Thank you. David Knight

Paul, I recently read your newsletter on Single Member LLC not an individual. You have stated that the IRS has a ruling on this, could you let me know what the ruling cite is? I have tried to find it and cannot. thanks, for your time and thanks for your excellent newsletter!

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