Finch, Inc., a calendar year general contractor, and Cardinal, Inc., a developme

ID: 2376455 • Letter: F

Question

Finch, Inc., a calendar year general contractor, and Cardinal, Inc., a development corporation with a July 31 year-end, formed the equal FC, LLC, on January 1 of the current year. Both LLC members are C corporations. The LLC was formed to construct and lease shopping centers in Seattle, Washington. Finch contributed cash of $1 million, equipment (basis of $200,000, fair market value of $500,000), building permits, and architectural designs created by Finch%u2019s employees (basis of $0, fair market value of $200,000). Cardinal contributed land (basis of $500,000, fair market value of $700,000) and cash of $1 million. The cash was used as follows:

Legal fees for drafting LLC agreement $ 20,000

Materials and labor costs for construction in progress on shopping center 1,900,000

Office expenses (utilities, rent, overhead, etc.) 80,000

What issues must the LLC address in preparing its initial tax return?

Explanation / Answer

For tax years that begin on or after January 1, 2010,

and before January 1, 2018, an LLC that is a small

business solely owned by a deployed member of the

United States Armed Forces shall not be subject to

the annual tax if both of the following apply:

%u2022 The owner is deployed during the tax year.

%u2022 The LLC operates at a loss or ceases operation.

For the purpose of this exception:

%u2022 "Deployed" means called to active duty or active

service during a period when the United States

is engaged in combat or homeland defense.

"Deployed" does not include temporary duty

for the sole purpose of training, processing,

or a permanent change of station.

%u2022 "Operates at a loss" means an LLC's expenses

exceed its receipts.

%u2022 "Small business" means an LLC with $250,000 or

less of total income from all source