Question

Partnership to SMLLC

Forum|Forum|3 years ago
August 17, 2022
3 replies
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Partnership A had two partners. Partner 1 & Partner 2. Partner 2 sold his interest in the company and Partnership A became a Single Member LLC (SMLLC). Partnership A is a partner of Partnership B. What are the steps to change the entity type from Partnership to SMLLC and how do you address Partnership A's interest in Partnership B if Partnership A is no longer a partnership?

Not A Product Question

A

Anonymous_

Employee

You are correct in stating that Partnership A is no longer a partnership (a partnership cannot have only one member).

Also, are you using TurboTax? Partnership B still needs to file a 1065. Partnership A needs to file a final 1065.

I will page @Rick19744 for particulars.

Carl11_2

Employee

Basically, the partnership was dissolved on the date their were no longer two or more owners. So a final 1065 would need to be filed and depending on the state, if state registration of the partnership was required, then a partnership dissolution would need to be filed with that state.

The remaining owner will report all business income/expenses on SCH C of their personal return, with all business income/expenses being reported effective on the start date of the SMLLC.

TYpically, the start date of the SMLLC would be one day after the date the partnership was dissolved.

A

Anonymous_

Employee

The SMLLC is a partner in another partnership (Partnership B) and, as a result, would be receiving a K-1 from Partnership B when it files its Form 1065.

A

ALBTAXAuthor

My question is if Partnership A is now a SMLLC reported on a Sch. C, then how do they receive the K-1 from Partnership B?

Rick19744

Employee

Partnerships are complicated structures regardless of size:

There are limited facts to provide much guidance
It may be in your best interest to get some professional advice in winding up partnership A
Your situation is discussed in revenue ruling 99-6
As noted, there will be a final 1065 required, liquidating distributions, you may have bifurcated holding periods on assets, possible recapture for the former partner, form 1099-DIV reporting for the liquidating distributions,etc.
I would recommend you review the above revenue ruling and circle back with additional facts and questions.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.