Boston Real Estate Investors Association

New IRS Requirement for LLCs & LPs – Action Needed Immediately.

New IRS Requirement for LLCs & LPs – Action Needed Immediately.

Update your LLC Operating Agreement Now and Avoid Being Taxed at the Highest Individual Tax Rate

Want to avoid paying taxes on your business income at the highest tax rate?

Tired of dealing with CPA’s with no REAL ESTATE experience?

Do you have a Toxic LLC that will make you pay taxes on another investor’s liability?

Will inept tax advice cause you an IRS audit?

Want to take advantage of the new 20% deduction for business owners.

Only 150 operating agreements will be updated! We will only work with 30 investors on their businesses to take advantage of the new deduction.

What you need to know:

Under the new tax law, the IRS can assess adjustments to a partnership /LLC’S income tax return – at the maximum allowable tax rates in effect… ultimately the IRS could attach partnership assets (bank accounts or other assets) to collect any IRS determined change in partnership tax liability.

What does this mean to you? If you are in any tax bracket on your personal 1040 other than the maximum tax rate under current law… you will effectively be taxed at the higher maximum tax rate in effect for the year of the adjustment!!!

Additionally – without changing your operating agreements the IRS can choose for purposes of an audit and audit adjustments, who it wants to serve as the partnerships “tax matters partner”, from among the partners or anyone else it decides to appoint to represent the partnership!

 The pass-through deduction — does it apply to you?

Taxpayers with pass-through businesses are able to deduct up to 20% of their pass- through income. 20% deduction for qualified business income received from a pass- through entity are only valid to business other than professional services business like doctors, attorneys, accountants, performing artists, professional athletes, and people who work in the financial services or brokerage industry, and any trade or business where principal asset is the reputation or skills of the owner. However, the tax reform did not give a detailed explanation on section of financial services and trade or  business. The availability of the deduction is limited in several ways. Under the final tax reform bill, the deduction is limited to the greater of (a) 50 percent of W-2 wages, or (b) 25 percent of W-2 wages plus 2.5 percent of qualified property. The reason for that provision is because W-2 wages do not include amounts that are not properly allocable to qualified business income.

When it comes to computing the wage and property limits, there are some additional restrictions too. First, W-2 wages do not include guaranteed payments paid to the partners and exclude compensation to S corporation shareholders/owners. Second, eligible W-2 wages are allocated to shareholders and partners in the same proportion as the original deduction for wages. Lastly, qualified property is limited to personal tangible property held by and available for use in, a qualifying pass-through trade or business. If the property is no longer held by, or available for use in, then it cannot be used to determine the wage plus property exception.

The 50 percent wage limitation and the wage plus property limitation does not apply to lower income taxpayers, as well as the definition of qualified businesses for specified service trade or business.

Most wealthy privately held businesses form the “Alternative Board”. That’s why we offer our clients a business analysis meeting. During this stage, we:

1. Get crystal clear on how your business is doing today.
2. Identify where you want to go with your business in the future.
3. Discuss the steps you need to take and strategies you need to implement to get there.
4. Explore if a Smarter Small Business Coaching or Consulting program can help get you there faster.

Our annual 1 hour Wealth Building Business Meeting this year will focus on the tax law changes and making updates to all Operating Agreements for the new Tax Law Changes


The new partnership audit rules will require partnerships to take certain measures to come into compliance with the new rules, some of which may be addressed in the partnership operating agreement. Please note that most of these can be addressed by updating your partnership operating agreement. However, some of these rules apply at the time of the audit. It is not necessary to update your partnership agreement before year end but it’s important to note that these changes will need to be made in 2018 prior to the filing of the 2018 tax returns in 2019.

#1. Designating a Partnership Representative. The proposed regulations require a partnership to designate a Partnership Representative (“PR”) for tax years beginning after 2017 (or, if the new representative is elected earlier, then at that time). Similar to the Tax Matters Partner (“TMP”) under the TEFRA rules, a PR is the point of contact between the entity and the IRS. Also like the TMP, a PR may bind the partnership. Unlike the TMP, however, a PR may bind all partners to the conclusions of an audit proceeding. Moreover, unlike a TMP, The PR may be a non-partner, as long as the PR has a substantial U.S. presence. If a partnership fails to designate a PR, IRS may do so on its own initiative. Therefore, a partnership should designate a PR or, at a minimum, determine the procedures for designation.

#2 Preparing for an Opt-Out Election. For those eligible partnerships that prefer to opt out of the new audit rules, an election must be made annually with the filing of the partnership return. In such case, the partnership may consider specifying in the partnership agreement its intent to make the election. In drafting such a provision, the partnership may consider the impact of S corporation partners and the need to secure their agreement. Moreover, any agreement may be set up to avoid ownership by those which would make the partnership ineligible to opt out, such as other partnerships, trusts, disregarded entities, and nominees. Partnerships currently ineligible to opt out because of their structure should consider restructuring their ownership.

#3 Preparing for a Push-Out Election. Partnerships that either cannot opt out or prefer not to opt out of the new rules may elect to push adjustments out to its reviewed- year partners. In such a case, it may be advisable for the partnership agreement to specify such intent and direct the PR to make a push-out election. A partner entering or exiting a partnership should consider the tax implications of any existing and future tax liability resulting from the partnership’s election to push out any imputed underpayment.

#4 Preparing to Modify the Imputed Underpayment. A partnership that makes neither an opt-out nor push-out election may want to modify any imputed underpayment amount as permitted under the proposed regulations. In such case, it may be desirable to specify in the partnership agreement that impacted partners will provide any necessary documentation or file amended returns as needed.

#5 Minimize self-employment taxes. If you generated any kind of active real estate income, have you considered restructuring your business to minimize the impact of self- employment taxes?

#6 Real estate deductions. If you have significant real estate education expenses, have you registered a business in order to minimize your audit exposure on deducting these expenses.

Our Fees

For our current clients, the price of a resolution agreement (just addresses the IRS changes) is $ 99. For new clients, the price of a resolution agreement (just addresses the IRS changes) is $ 149.

For our current clients, the price of our annual 1 hour Wealth Building Business Meeting is $ 399. For new clients, its $ 499. These includes completing the resolution agreement For our current clients the price for a completely new operating agreement is $ 299.

For new clients the price is $ 399 Please contact us at The Wealth Building CPA at 1-888-502-3767 or request a consultation for more information on updating your LLC documents and restructuring your entity to take advantage of your 20% business income deduction. It is important to do this before the end of 2018, so please call now.

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