If I’m a 10% managing member of an LLC, how do I protect myself from possible IRS fines since my partner has failed to file this year’s tax returns?

He also missed the extension deadline. At this point I have no way to make him perform.

Asked on October 1, 2014 under Business Law, Colorado

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

You might not be able to protect yourself from fines, since the obligation to file tax's on time is an absolute one--there is no exception, for example, for a another partner's (even a majority owner's) failure to file. This is not to say that the IRS might not take the circumstances into account and be lenient than they would be otherwise, but that is discretionary on their part. You need to get the tax filings done; you also need to look into *why* your partner has been so late--did he embezzle money and is trying to hide it? Did he lose the money in bad investments? Did he pay his own personal expenses with LLC funds? Etc.--while it's not a given that there is something going on beyond simple incompetence or laziness, or a deep-seated aversion to math and paperwork, you have to assume that there's at least a chance that the failure to file is simply a symptom of some larger wrong or problem. You should speak with a tax attorney right away about not just dealing with the IRS, but also about taking steps to determine what is going on.


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