Legal Memorandum: LLC Tax Filing Rules in DE

Issue: Does the Delaware LLC Act require an LLC to file its own separate tax return?

Area of Law: Business Organizations & Contracts
Keywords: Tax return; Limited Liability Company (LLC)
Jurisdiction: Delaware
Cited Cases: 971 A.2d 872; 913 A.2d 572
Cited Statutes: Del. Code Ann., tit. 6 §§ 18-101 to 18-1109; Section 18-305(a)(2) Delaware Limited Liability Company Act; § 18-305(f) Delaware Limited Liability Company Act
Date: 03/01/2014

See the Delaware Limited Liability Company Act (the “LLC Act”), Del. Code Ann., tit. 6 §§ 18-101 to 18-1109.  Section 18-305(a)(2) of the Act permits members to obtain, “[p]romptly after becoming available, a copy of the limited liability company’s federal, state and local income tax returns for each year.”  (emphasis added). 

First, as the plain language of the statute points out, the obligation to provide the tax returns is not triggered and does not arise until “after [the returns] becom[e] available.”  In this regard, “the plain meaning of the statutory language controls”; if the language is unambiguous there is simply no room for judicial interpretation.  CML V, LLC v. Bax, 28 A.3d 1037, 1042 (Del. 2011).  Second, the statutory requirement that certain information or documents be provided, does not generally require the creation of documents that do not otherwise exist.  Arbor Place L.P. v. Encore Opportunity Fund, LLC No. 18928 (Del. Ch. Jan. 30, 2002).

It can be argued that § 18-305(a)(2) clearly implies that limited liability companies must file separate tax returns.  But the problem is such a requirement is not explicitly set forth in the Act, either at § 18-305 or elsewhere.  To convince a court to accept such an implied requirement appears to contravene the underlying policy of the LLC Act to give parties the maximum ability to define their own business relationship, not one mandated by statute.  “Limited liability companies are creatures of contract, and the parties have broad discretion to use an LLC […]

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