LLC late filing penalties

[michaelmars]

Can the individuals be held liable for the late filing penalties of an LLC that no longer has assets? This was an entity taxed as a partnership and NYS is threatening to levy the accounts of the partner's. IF so, just the managing partner or any of them?

[kcjenkins]

Probably any of them, depending on what the state law says.  Although in such case, the other partners would have grounds to sue the 'tax partner' for his/her failure to take care of the obvious responsibility to file required returns, to get it back.

[jklcpa]

I agree with KC. Any of the general partners would be fair game for levies.

[michaelmars]

as long as they don't take out funds personally, they cant go after owners of a Corp so I  am thinking this might be the same.  They had losses for 5 years and no one wanted to fund the llc to pay accounting fees etc then all at once they decided to get current.

[kcjenkins]

LLC is not the same as a corp, more like a partnership, although state laws do vary a bit and the Operating Agreement may also speak to the responsibilities, but in general, all members have some basic responsibilities.  So they wanted the tax benefits of the write-offs, but not to pay for the legal obligations?  Cry me a river! 

[michaelmars]

KC  that's out of line and making assumptions that weren't stated.  The question is are any partners liable for this and if so is it just the managing partner.  Imagine a partnership with 100 partners and you own .005 percent, not the State is coming after you for 100% of the late filing penalties.   That is the current situation.  The State agent said he is going after the bank accounts of any partner that has the resources and I was just wondering if he was blowing smoke or can really do that.  This isn't about anyone getting write offs but not wanting to pay their liabilities.  Heck some of my clients have over 70 K-1's in their return.

[kcjenkins]

Michael, that additional info does help me give a better answer.  Can I assume it's a NY LLC?  

Unlike most states, New York's LLC law requires LLC members to adopt a written operating agreement.  The Operating Agreement may be entered into before, at the time of, or within 90 days after filing the Articles of Organization. The Operating Agreement is the primary document that establishes the rights, powers, duties, liabilities, and obligations of the members among themselves and to the LLC.  The Operating Agreement is purely an internal document and is not filed with the Department of State. 

So you need to get a copy of the Operating Agreement, to determine whether the liability for filing is spelled out.  

Sorry if my second answer sounded harsh, but I have seen too many small family LLCs where all members loved the benefits, but no one wanted to take care of the obligations.  And your second post sounded a bit like that.  

They had losses for 5 years and no one wanted to fund the llc to pay accounting fees etc then all at once they decided to get current.

​New York law is silent on the consequences of not adopting an Operating Agreement.  But if it has 100 members, it's probably got one, and while it's not clear how much the state will follow that Agreement, the fact that they mandate having one should work in favor of it being binding on the members.  So if it states that the Managing member is responsible, the State agent should have to honor that.

[michaelmars]

Yes its a NY LLC, and I don't think the operating agreement is all that important to a NY tax collector, which often is outsource to private agencies.  Yes if a limited member gets levied they will go after the managing partner but m question was if anyone knew if the limited partners can even get levied?  Also there is some thoughts that even though the managing member should be liable, they are still considered limited partners per irs and thus would not be personally liable either.

[kcjenkins]

The Managing partner would be liable for a breach of his fiduciary responsibilities, regardless of his being a limited partner.   Have you gotten a copy of the Op Agreement?  

[michaelmars]

I AM not concerned with the op only if the state or irs can get the money from the limited members.  Yes they will have a claim against the managing member if their money gets taken but that's fight for another day, today the fight is with nys and their right to levy the limited members banks

[kcjenkins]

Michael, I think you missed my point.   Since the state MANDATES that there be an operating agreement, you should have no problem arguing that IF the operating agreement spells out who is responsible for the filing, that is who they must go after.  My point is that you should take that position when talking to the agent.  Look, we all know that state employees do sometimes exceed their authority, and there is nothing you can do about that.  BUT, if you make a good legal argument before they act, you at least have a CHANCE of stopping that action before it happens.  They don't like to look bad in court, and their bosses don't like it either.  

Given all the publicized cases of the misuse of Civil Forfeiture laws, there is no question that the state or IRS can get the money from the limited members.  I'm just trying to give you what little argument there is on your client's side.  

[michaelmars]

thanks for all the replies KC