Is it possible, in an LLC with two members, for all of the taxes to "pass through" to one of the members, resulting in the LLC having no effect on the other member's taxes? The non-tax-paying party does not care about receiving profits, and is only involved because the other member is a minor and there needs to be an adult co-owner to sign contracts.
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"there needs to be an adult co-owner to sign contracts" - then why is the adult a member of the LLC?– Jack FleetingAug 26, 2022 at 12:59
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@JackFleeting how else could they sign contracts? Could the minor own a single member LLC but allow the adult to bind it to contracts?– SomeoneAug 26, 2022 at 14:44
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Would the adult be an "individual with direct knowledge"?– SomeoneAug 26, 2022 at 14:50
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I'm not sure what "an individual with direct knowledge" means, but the way these things are done is by creating a single member LLC (with the single member being the minor) and having the LLC managed by a nonmember-manager (the adult). Talk to the minor's lawyer and make sure his accountant is also involved.– Jack FleetingAug 26, 2022 at 15:59
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@JackFleeting in that case, isn't the adult supposed to do all the work? The goal is for the minor to do as much of the work as possible and get as much of the money as possible, and for the adult to just be involved to sign contracts. An "individual with direct knowledge" is a field on the Oregon LLC registration form: "...an individual who is a member or manager of the LLC or an authorized representative with direct knowledge of the operations and business activities of the LLC."– SomeoneAug 26, 2022 at 16:10
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1 Answer
Under U.S. law, an LLC taxed as a partnership rather than as a corporation (the default rule for multimember LLCs in the U.S.), is a pass through entity that allocates income and expense and tax credits as set forth in its operating agreement. This allocation must have "substantial economic effect" to be valid.
So, if both members receive economic benefit from the company, then they must both have taxes pass through to them in a way that reflects this economic benefit. But, if only one member receives an economic benefit than allocating all taxes to that member is appropriate.
This said, it isn't obvious that the solution proposed is a correct way to deal with the state law issues of the contractual capacity of a minor.
answered Aug 26, 2022 at 19:52
