# Tri-County Tire LLC — URGENT Tax Review (Supersedes 2026-05-24 v1) **From:** Ledger **To:** Rex **Date:** 2026-05-24 **Priority:** **URGENT** — 2024 filing error confirmed; SE tax exposure; affects 2025 prep **Client:** Tri-County Tire LLC (slug `tri-county`) **Engagement:** Cleanup engagement Jan 1 2025 → present **Supersedes:** Earlier v1 handoff dated 2026-05-24 (entity question now resolved) --- ## What's new since v1 Confirmed by Jimmie: **Riley Nolt is a co-owner of Tri-County Tire** (alongside Joshua Nolt). This changes the tax picture materially: - **2024 Form 1040 has Tri-County Tire on Joshua's Schedule C as a sole proprietorship** (verified — I extracted the return) - With two co-owners, the business should have been reported on **Form 1065** with K-1s to both partners - Same surname but NOT spouses → **qualified joint venture election unavailable** - This is a filing error, not an interpretation difference You're now the lead on resolving the tax-side path forward. Books cleanup is proceeding in parallel, but Phase 9 (equity reset) is gated on your call. --- ## Issue 1 (NEW + URGENT) — 2024 filing error: Schedule C should have been Form 1065 ### What I know | Detail | Source | |--------|--------| | Joshua Nolt SSN 312-17-4777 | 1040 page 28+ | | 1040 filed jointly with spouse Amanda M Nolt | 1040 page 30 | | Tri-County Tire reported on Joshua's Schedule C (single Sch C; full business reported) | 1040 pages 9, 11 | | Cash basis for tax; accrual for books | "Accr to cash adj_a/p $140,461" footnote | | Schedule C 2024 ending inventory = $0 (cash-method election) | 1040 page 9 | | Schedule C 2024 COGS $3,595,769; Other Expenses $122,852 | 1040 page 9 | | Riley Nolt co-owns (Jimmie's confirmation, 2026-05-24) | Conversation | | Joshua + Riley NOT spouses (different last names? same? — Joshua's wife is Amanda; Riley's last name is also Nolt — likely brother) | 1040 + POS BS | | POS book equity tracks equal owner withdrawals: Joshua -$102,500 + Riley -$102,500 in 2025 | POS BS 12/31/2025 | | POS book has separate "Due from Owner-Riley" $844,392 — built up over multiple years | POS BS 12/31/2025 | | Books accrued $39,756 of Interest Revenue on POS 2025 IS — likely AFR interest on the Riley loan | POS IS 2025 | ### What I need from you 1. **2024 amendment analysis** - File amended 1040 for Joshua removing Tri-County from Schedule C - File Form 1065 for Tri-County Tire (initial-year-as-partnership return for 2024 — possibly with §761 election considerations) - Issue K-1s to Joshua and Riley - Joshua picks up his share via Schedule E (replacing the lost Schedule C income) - Riley files an amended 1040 (or original if he didn't file) picking up his K-1 2. **Riley's prior-year tax posture** - Did Riley file 2024 a 1040 at all? If yes, what did he report from the business? - SE tax exposure on Riley's distributive share — significant if he reported nothing - Penalties for failure-to-file 1065 ($235/partner/month, capped 12 months) — could be material 3. **2025 tax-year framing** - 2025 has to be a 1065 (with or without amended LLC structure) - Need to determine entity status: is there an LLC organized in Wisconsin? If yes, multi-member LLC → defaults to partnership taxation, just file 1065. If no, general partnership formed by operation. - **Question for client:** Operating agreement (or any written ownership documentation)? % ownership between Joshua and Riley? Equal (POS suggests yes — $102.5K withdrawals each)? 4. **Forward-state entity recommendation** - **Option A:** Multi-member LLC + partnership taxation (status quo cleaned up) - **Option B:** Multi-member LLC + S-corp election (saves SE tax above reasonable salaries, but adds payroll complexity for both partners as W-2 employees of the S-corp) - At $1.23M 2025 net profit between two owners, S-corp savings could be material. Worth modeling. 5. **Payroll cross-check** - Books show "TCT Salaries & wages" $24,186 YTD April 2026 — small number relative to scale, but who's getting paid? If either Joshua or Riley has W-2 wages from the partnership, that's currently wrong (partners can't be employees under partnership taxation). They'd be guaranteed payments instead. --- ## Issue 2 (UPDATED) — Owner loan: "Due from Owner-Riley" $844,392 ### Updated framing (now that Riley is confirmed as partner) What was previously framed as an "owner loan from S-corp shareholder" or "draws from sole prop" is now a **partner-level item under partnership accounting**. Possible characterizations: 1. **Negative partner capital balance** — Riley has taken distributions in excess of his basis; books need to track this as negative capital, with potential gain recognition on excess distributions 2. **Bona fide partner loan to the partnership** — partnership lent money to Riley; need documentation, repayment terms, market-rate interest (§7872 still applies) 3. **Guaranteed payment** — recharacterized as compensation for services rendered, with SE tax implications Each has different tax consequences. ### Built-in accrued interest POS 2025 IS shows "Interest Revenue $39,756" — the partnership has been accruing interest on the Riley loan. That implies an intent to treat it as a bona fide loan. AFR for 2024-2025 short-term ranged ~4-5%, so $39,756 on $844K is ~4.7% — consistent with mid-term AFR. But: - Is there a written loan agreement? - Are interest payments actually being made by Riley? - Or is this just an accrual without any actual cash repayment? If purely accrued without payment, IRS could recharacterize as distribution. ### What I need from you A recommended treatment for the $844K balance going forward + restatement approach for the cleanup. Phase 4 of my plan executes whatever you decide. --- ## Issue 3 (UNCHANGED, IMPROVED) — Fixed assets & depreciation ### Good news from the 1040 extraction I now have the **complete 2024 Federal Asset Report** with every asset, date in service, cost, §179 election, depreciation method. This makes Phase 7 (FA register rebuild) much faster. Highlights from the asset report: - 2024 §179 elections: $119,903 across 8 assets (boom lift, tire changers, mezzanine racking, vehicles) - 2024 MACRS depreciation: $19,782 on buildings ($1.2M building + addition) - Prior MACRS still depreciating: Hunter tire machine, 2 service trucks, skidsteer, original shop, tools, F550, AG tire changer, Kodiak C5500, etc. - Total prior-acquired assets at gross cost ≈ $1.2M - 2024 acquisitions ≈ $1.32M (mostly building addition + §179 items) POS BS 12/31/2025 shows: - Buildings $1,596,664 (= $1.2M new + $48,852 leasehold + some pre-existing? need to reconcile) - Equipment $599,526 - Vehicles $372,204 - Accumulated Depreciation -$469,983 (likely synced to tax accum dep + 2024 §179 reductions) ### What I need from you Confirm whether book depreciation = tax depreciation (i.e., they use tax method for books too, common for small businesses) or whether we should set up a separate book-basis schedule. The POS doesn't seem to accrue periodic depreciation, suggesting an annual year-end JE synced to your tax depreciation. If yes, I'll just mirror tax depreciation in QBO going forward. --- ## Issue 4 (NEW — minor) — Related entity "TriCounty Holdings" POS BS 12/31/2025 shows: "Due to_TriCounty Holdings $3,750" (short-term note payable). Separate entity exists. Implications: - Need to know what TriCounty Holdings is (separate LLC owned by same owners? real estate holding company?) - Whether there are intercompany transactions to scope - Whether TriCounty Holdings has its own tax filing obligation Probably parking-lot for now unless it surfaces something material. --- ## Issue 5 (NEW — minor) — Joshua has a second Schedule C (unrelated) "Elite Drone Service / Deer Recovery & Lost Pet Search" — $0 revenue, -$2,946 loss for 2024. Filed on the same 1040. **Not your problem** — just noting it exists so you don't get confused if you see it. --- ## Timeline & gating | Item | Owner | When | |------|-------|------| | Read this memo | Rex | This week | | Confirm entity structure (LLC? Operating agreement?) with client via Jimmie | Rex + Jimmie | Within 1 week | | Model 2024 amendment vs leave-as-is (penalty exposure analysis) | Rex | Within 2 weeks | | Recommend entity path forward (partnership vs S-corp) | Rex | Within 2 weeks | | Tax memo with restatement approach for $844K Riley balance | Rex | Within 3 weeks | | Confirm book = tax depreciation approach | Rex | Within 2 weeks | | **Ledger holds Phase 4 (owner loan reclass) and Phase 9 (equity reset) until your memos are in** | Ledger | Hard gate | Bank rec, vendor cleanup, AR unification, inventory rebuild, COA rationalization — all proceeding in parallel. --- ## Reference - Master cleanup plan: `Team Inbox/Tri-County Tire/2026-05-24 - Ledger - Cleanup Map - Master Plan.md` - First-pass diagnostic: `Team Inbox/Tri-County Tire/2026-05-24 - Ledger to Jimmie - First-Pass Diagnostic.md` - 2024 1040 PDF: `Team Inbox/Tri-County Tire/Joshua Nolt 1040 for 2024.pdf` (67 pages; image-based but extractable with PyMuPDF) - 2025 POS BS + IS: `Team Inbox/Tri-County Tire/TCS - Balance Sheet ...pdf` + `... Income Statement ...pdf` - QBO MCP direct read access: slug `tri-county` - Live cleanup phase tracking: Tasks #1-#11 in current session