Are a husband and wife who jointly own a 50% interest in an LLC required to file a partnership income tax return?

Filing Requirements for LLCs Owned by Married Couples

Partnership Filing Requirement

Generally, a business entity that is classified as a partnership under the Internal Revenue Code must file an annual information return to report the income, deductions, gains, losses, etc., from its operations. However, there are exceptions to this rule, particularly for married couples who own and operate a business together.

Qualified Joint Venture Exception

A married couple who jointly own and operate a trade or business may elect to be treated as a qualified joint venture instead of a partnership. This election allows them to avoid filing a partnership return (Form 1065) if they meet certain criteria:

1. The only members of the joint venture are a married couple who file a joint tax return.

2. The spouses own and operate the trade or business as co-owners (and not in the name of a state law entity such as an LLC or LLP).

3. Both spouses materially participate in the trade or business.

4. Both spouses elect qualified joint venture status on their Form 1040 by dividing the items of income, gain, loss, deduction, credit, and expenses in accordance with their respective interests in the venture.

For more information on the qualified joint venture election, you can refer to the [Election for Married Couples Unincorporated Businesses] and [Married couples in business].

LLC Considerations

It's important to note that the qualified joint venture election specifically excludes businesses that are owned and operated by spouses as co-owners in the name of a state law entity such as an LLC. Therefore, if a married couple owns a 50% interest in an LLC, they generally cannot elect to be treated as a qualified joint venture for federal tax purposes. Instead, the LLC would typically be classified as a partnership and would be required to file Form 1065, unless it elects to be treated as a corporation.

Community Property States

Special rules apply in community property states that may allow a married couple to treat an LLC as a disregarded entity in certain situations. For specific guidance on community property states, see [Revenue Procedure 2002-69 PDF] and the instructions for Schedule C.

Conclusion

In summary, a married couple with a 50% ownership in an LLC is generally required to file a partnership tax return (Form 1065) unless the LLC elects to be treated as a corporation or they are in a community property state and meet certain conditions. The qualified joint venture election is not available for businesses operated through an LLC.

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Sources:

Entities | Internal Revenue Service 2024-08-03

Election for Married Couples Unincorporated Businesses 2024-08-02

Married couples in business | Internal Revenue Service 2024-08-04

Partnerships | Internal Revenue Service 2024-08-04

Instructions for Form 1065 (2023) | Internal Revenue Service 2024-08-03

Publication 1635 (Rev. 2-2014) | Internal Revenue Service 2024-08-03

Publication 541 (03/2022), Partnerships | Internal Revenue Service 2024-08-03

2023 Instructions for Schedule F (2023) | Internal Revenue Service 2024-08-03

2023 Instructions for Schedule E (2023) | Internal Revenue Service 2024-08-04

FIRPTA Withholding | Internal Revenue Service 2024-08-03