Tax Implications for Involuntarily Disassociated Members
If a partner in an LLC taxed as an S-Corp is unlawfully and involuntarily removed or disassociated from the company, is the IRS still obligated to collect taxes for the years when the member received no income, distributions, or salary?
One response
In general, the IRS requires members of an LLC taxed as an S-Corp to report their share of the company’s income on their personal tax returns, regardless of whether they received actual distributions or salaries. However, if a member is involuntarily disassociated from the LLC and did not receive any income, distributions, or salaries during those years, they may not have a tax liability for that period.
It’s crucial to document the circumstances surrounding the involuntary disassociation and consult with a tax professional to understand your specific situation. The IRS may still require you to file a return if you have passive income or if you are deemed to have income from the LLC based on your ownership percentage, even if you didn’t receive distributions. A tax professional can provide guidance on how to proceed and whether you need to file returns for those years.