Question

S-Corp election (Sole Member, Community Property State) and K-1 - 50% or 100%?

Forum|Forum|5 years ago
January 23, 2021
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I have an LLC which I created in the State of Texas (Community Property State) with my wife and I as members. My wife participates passively (less than 500 hours per year) and I participate actively.

When I requested my EIN from the IRS, they correctly said "Sole MBR" on the form since we are a community property state. We split the first year 50/50 onto schedule C.

In 2020, I filed form 2553 for the S-Corp election, again, the IRS referring to us as "Sole Member". Is it ok to make 2 K-1s in TurboTax Business (one for her and one for me) or should I make only one for me since the IRS sees us within the community property state?

We file jointly, however, she is still passive in this and I am active. So it seems to me I should split the two. But I haven't filed us as a partnership, either.

TurboTax Business Windows

M-MTax

Close to a not being any kind of problem because you are married filing jointly and also in a community property state. I'd issue two K-1s IF.......IF IF IF.... your wife was listed on the 2553.....otherwise I'd just file one.

A

airplaneinsuranceAuthor

Thanks for the reply.

I did list her on my filing, however the IRS' S-Corp election confirmation still stated "Sole MBR" in their return mail to me, which shows they still understand the idea we are married.

My tax implication question is would any of this matter if we file two K-1s because she is passive and I am active? Or do we combine to be active because we are in a community property state? Would there be any change in our tax liability through this lens?

M-MTax

The instructions say this....."any work that you or your spouse does in connection with an activity held through an S corporation (where you own your stock at the time the work is done) is counted toward material participation."