Tax Law (Questions About Taxes)/7 Year limit


Dear Mr. Stancil:

My wife and I ( we are the only members of the LL) filed our LLC in 2009, in the state of Kansas, in the hopes of making a small business venture in Real Estate investing. We then attended seminars and webinars in an attempt to learn which aspect of R.E. investing would be right for us. It took some time, then in 2014, we found an investment opportunity in Arkansas with an experienced investor there. We formed another LLC with him in the state of Arkansas. We then transfered money to that corporate account from our private funds that we had pulled together. Here is where it gets sticky. We sent the money in our name, not our LLC's name. When the profit is realized from the fix and flips, can the profits go into our corporate coffer and be listed as profit for our LLC? What we recently found out, that in the IRS tax laws a company has to declare a profit within 7 years. Otherwise all deductions made within that time have to be paid back.

Two questions I have. How much in actual amount in profit would be considered enough to satisfy the IRS profit declaration requirement?
Also, the profit from the fix and flips may not come in till after April. Is there a way to request an extension until it is realized?

We realize that we entered this venture with out understanding how long it was going to take. We thank you for any input you have and thank you for your time.




Thanks for your question.

Actually, you have been misinformed. There is no such law. If you do not show a profit in 3 out of five years, the IRS may presume it is a hobby and not a legitimate business. You can overcome this presumption by demonstrating to the IRS that you have a profit motive. Factors the IRS considers are discussed in this article.

The fact you used personal, instead of LLC funds is a negative factor. Business and personal funds should not be intermingled.

Requesting an extension until April is a non-factor. Each. Year stands on its own.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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