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Qualified Joint Venture
(Husband and Wife LLC)
As another “disclaimer”, this article is specifically about a husband and wife LLC making the Qualified Joint Venture election as per the the IRS’ Revenue Procedure 2002-69. Other husband and wife businesses may also qualify for the Qualified Joint Venture election, however, we won’t be discussing that here.
A Qualified Joint Venture (LLC) is an election made with the IRS for husband and wife LLCs allowing them not to be taxed as a Partnership (and therefore being taxed as a disregarded entity).
By default, multi-member LLCs are taxed as a Partnership with the IRS, however, the IRS allows for husband and wife LLCs (which meet the requirements below) to be treated as “one unit”.
This allows the husband and wife to file one tax return instead of two, reduce accounting fees, reduce paperwork, and save time regarding record keeping.
Married Couple Single-Member LLC
Another way to imply the term Qualified Joint Venture is by using the term “married couple single-member LLC” or “husband and wife single-member LLC”.
But the term “single-member LLC” makes it sound like there is only one person, correct?
That is the case, except for husband and wife-owned LLCs in community property states. In community property states the husband and wife are treated as one “unit” for federal tax purposes.
In the husband and wife’s LLC Operating Agreement (the document which lists who owns the LLC, among other things), instead of listing the membership interests as “John Doe, 50%” and “Mary Doe, 50%”, it’ll be listed as “John and Mary Doe 100%”.
Requirements of a Qualified Joint Venture LLC
• If a married couple forms an LLC in a non-community property state (known as a “common law property state”), they do not qualify for the Qualified Joint Venture election.
• If a married couple forms an LLC in a community property state, they do qualify for the Qualified Joint Venture election, as long as they also meet the following additional requirements, as per Revenue Procedure 2002-69:
- The business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or a possession of the United States;
- No person other than one or both spouses would be considered an owner for federal tax purposes; and
- The business entity is not treated as a corporation under § 301.7701-2.
Community Property States:
- New Mexico
Note: In California, an LLC owned by Registered Domestic Partners is not allowed to use a Qualified Joint Venture. Instead, the LLC must be taxed as a Partnership.
Advantages of Husband and Wife Qualified Joint Venture LLC?
The advantages of a Qualified Joint Venture LLC are:
1. Save time: The married couple eliminates the extra paperwork and recordkeeping requirements of a Partnership.
2. Save money: The married couple saves money on accounting and tax preparation. Instead of the need to file a Partnership 1065 return, K-1s, and then a separate 1040 for each spouse, the married couple’s accountant will just file a Schedule C along with Form 1040 for just one spouse.
3. Social security and Medicare: The married couple can get additional credit for paying Social Security and Medicare taxes (without actually having to pay more in taxes).
How Can a Married Couple Form a Single-Member LLC?
Steps to forming a husband and wife single-member LLC:
1. Select your desired LLC name.
2. Designate your LLC’s Registered Agent.
3. File your LLC filing forms with the Secretary of State’s office. This document is usually called the Articles of Organization, but in a few states it may be called Certificate of Organization or Certificate of Formation.
If your state’s Articles of Organization asks for the LLC members, do not list “John Doe” and “Mary Doe” on two lines. Instead, list “John and Mary Doe” on one line.
4. Draft your LLC’s Operating Agreement. List the LLC member as “John and Mary Doe” and later when the Operating Agreement asks for the capital contributions, list that financial amount alongside the ownership percentage as “John and Mary Doe, 100%”.
5. Obtain your Federal Tax ID Number (also called EIN) from the IRS. Use the IRS EIN online application. After you select your state, the IRS will ask if you are a husband and wife company. Select yes. Then on the next page, the IRS will ask if you’d like to be taxed as a multi-member LLC (Partnership taxation) or a single-member LLC (Qualified Joint Venture taxation). You’ll select single-member LLC.
Note: After your EIN is issued by the IRS, they will provide you with an EIN Confirmation Letter. At the top of the letter you will only see one of the spouses’ names and the abbreviation “SOLE MBR”. Don’t be alarmed though, your Qualified Joint Venture election has been noted by the IRS. Further, you aren’t technically “making the election” by obtaining your EIN. As stated in Revenue Procedure 2002-69 (section 4), however you choose to file your taxes (whether as a Partnership or a Qualified Joint Venture), the IRS will accept.
How to Change Husband Wife Partnership LLC to a Qualified Joint Venture?
Do you have an existing husband and wife LLC taxed as a Partnership and want to change it to a Qualified Joint Venture?
Here are the steps:
1. Make sure the LLC is formed in a community property state and you meet the requirements listed above.
2. Download this Qualified Joint Venture notification letter.
3. Mail your letter to the IRS.
Depending on the state where your LLC is located, you’ll mail your letter to either Kansas City, Missouri or Ogden, Utah:
Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201
Note: There is no street address needed.
To determine which address you should use, please reference this page:
4. Wait 30-45 days for an IRS Confirmation Letter. The letter confirms that the IRS will now recognize your husband and wife LLC as a Qualified Joint Venture.
Federal taxation of community property (Berkeley Law)