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Sch R

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Message Board Sch R

This topic contains 2 replies, has 2 voices, and was last updated by Anonymous 9 months, 2 weeks ago.

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  • #141468

    LLC A (taxed as a partnership) is a located out of state and all members are located out of state.  This happens to be a state with no income tax.  This entity has not actual business, it is just investing in several other business investments, some of them are LLC’s.

    One of the investments (call is LLC B) is an LLC that now have CA source income.  To complicate things further,  the membership interest in LLC B was sold during the year.

    1.  Reading the instructions to Sch R, it seems like the income from LLC B would not be “business income” to LLC A because it is not part of it’s business operations. It should just be allocated out to the members and not apportioned on Sch R, correct?
    2. My software seems to want to apportion the capital gain from the sale no matter what I do, but I’m pretty certain this should not be apportioned as it is non-business income.  It seems like this should go on Sch R-4, correct.
    3. Or is a schedule R not even required in this case?  The schedule R instructions seem to indicate that partnerships and LLC’s should just pass non-business income out to the members.


  • #141555
    Sandy Weiner

    The whole issue of business/nonbusiness income is extremely fact specific so its really hard to give advice based on the limited facts provided here. You may also want to take a look into whether LLCA is really doing business in CA and required to file a return based solely on its investment interest in LLCB. The FTB has taken the position that if LLC B is taxed as a partnership, just having an interest in LLC B would mean they are doing business in CA. However, if that interest was a minority interest, you may be able to argue that it does not reach the level of doing business. Again it is hard to tell from these facts.

    Please see our Tax Guide “California Taxation of Multistate Businesses” We discuss both the LLC “doing business” and buisness/nonbusiness inccome classification issues in detail.

  • #141637

    Thanks, I’m familiar with those issues, but I appreciate the input.

    Assuming it’s non-business income, but we want to file a CA return; would schedule R even be required?  It seems that the income should be passed out directly to the members and not apportioned in this case?