I will forgo the backstory here and keep this simple: I have an LLC that is two years old; it has reported a loss every year. I have three other small investors who own less than five percent of the company each. The LLC return for 2011 is being filed today; the K-1s will all show small losses.

Will the IRS penalize my investors if the K-1 (showing a loss) isn't included on the 2011 return? There has been no change to their capital accounts or anything like that.

Thanks as always for your help!

“Will the IRS penalize my investors if the K-1 (showing a loss) isn't included on the 2011 return? There has been no change to their capital accounts or anything like that.”-------> The IRS uses document ,Sch K1 of 1065,to report additional information related to, but not included in, another form. Form 1065 Sch K-1 is the form that a business must file as part of its own tax returns to show how it has divided its income or allocated its losses. The K-1 is prepared by the MMLLC to distribute to the partners to outline their portion of the income, loss, and deductions. Similar to a 1099 form received that highlights contractor income, you do not have to file the K-1 with your personal income tax return. Instead, you use the data on the form to fill out portions of your personal tax return.


HOWEVER, The IRS requires filing a partnership tax return or Form 1065 by the 15th of the fourth month after the end of the tax year shown at the top of the form. No tax is due with the Form 1065 or Sch K, but the IRS imposes a penalty of $50 for each partner for each month or part of a month that the tax return is late. This penalty continues for up to five months.
If you fail to file your federal income tax return as a result of failure to receive Schedule K-1, you incur additional penalties. Failure to file penalties is 5 percent, and the IRS charges an additional 0.5 percent for failure to pay any taxes owed. These penalties apply for each month or part of a month the tax return is late, up to 25 percent for each penalty. Penalties have a code number; 01 is the code for filing and paying late. Partnership late filing is 32, and a missing Sch K-1 is 33.

I can't seem to understand if you mean actually including the K-1with the members tax returns or you mean not reporting the information from a non completed K-1. The first answer is accurate as the K-1 does not go with the return. If, however, you meant the K-1s were not completed and the members want to file timely returns and there are only losses to report they have 2 options. One is to file an auto extension and complete their returns when K-1s are received. The other is to estimate or enter nothing regarding their K-1 losses and file on time. Then when they receive the K-1s file amended returns to account for the info on the K-1. More work the second way but they are not underestimating their tax liability by not accounting for any non-issued K-1s. This is a common problem in the tax business and each individual and their tax advisors should make that decision.