This isn’t as awful as it first sounds. I don’t think they’re doing it for tax purposes – it’s estate planning, or litigation avoidance between family members. They can put things in the operating agreement that are difficult to establish elsewhere, and they can more easily trade or gift their interests. There is also the anonymity that comes from not having to disclose initial or subsequent owners, or at least their percentage interests.

It is not correct to say that there will never be any income. When the property is sold, they may be lots of it.

There should be a K-1 explanation that the 13W expense is real estate taxes, to be deducted on Schedule A, subject to the SALT limits. The other expenses are not added to basis. If there are improvements, they should show up in the capital accounts.

You didn’t mention how many siblings are involved here, but if there are more than two or three, I can see where the advantages outweigh the disadvantages. I wonder how the insurance policy is written, though.