Question

Removed partner, how to fill K1, or change to sole member of LLC

Forum|Forum|3 years ago
February 27, 2023
2 replies
0 views

I had a partnership LLC including my wife's IRA and My IRA as members and I am manager of the LLC. My wife decided to cash out her IRA (save on annual IRA fees) in 2021 and we removed her from the partnership, and filed as needed.

Now the LLC is only my IRA, no more partnership. Turbo tax is now says my K1 is incomplete because my SSN is invalid. Well, I believe, the error is due to needing two members in a partnership where I only have one.

I tried changing the "member" to Individual, limited partner, etc. but Turbo Tax will not let me file showing my SSN as red, an error.

Not sure what to do for Form 1065, Schedule K-1

TurboTax Business Windows

A

Anonymous_

Employee

Completely aside from whatever else is going on here, if the only other partner (member of the LLC) withdrew in the 2021 tax year, then a final return (1065) should have been filed for 2021 as the partnership terminated.

You will never be able to prepare a 1065 in TurboTax Business with you as the sole member of an LLC (nor would it be proper to do so).

I will page @Rick19744 for further comment.

J

JustLostAuthor

Thanks. Using Turbo Tax Business: I went to Forms and saw I still had both partner's forms in there. I removed my wife's IRA form and that didn't fix it.

So, I decided to start over, from scratch i.e. not importing last year's Turbo Tax file. Turbo Tax Business now says I need to use 1065. I will switch to Turbo Tax Home and Business.

Thanks again.

J

JustLostAuthor

Well poop! That Idea "Turbo Tax Home & Business" isn't going to work because the LLC's only member is my IRA, and not my person. All income I enter is taxed where the Business - the IRA is the benefactor and not taxed.

I will do some more researching to get Turbo Tax Business to work... Maybe add myself as a 0% (or very low percentage) member?

Rick19744

Employee

I agree with @Anonymous_

A few comments:

There are too many unknown facts, and attempting to gather those additional facts and provide a response is beyond the scope of a forum such as this.
Partnerships having partners / members with an IRA, can add another level of complexity to an already complex area of tax; which is just plain old partnership tax.
When your wife liquidated her interest in the partnership (LLC), the partnership terminated at that time.
- The partnership needed to file a final return within 2 1/2 months of that liquidating distribution
- So that means there needed to be a final form 1065 and final K-1's to the member's
- There are special rules when property is received in a liquidating distribution. The property takes on a substituted basis equal to the member's interest in the partnership.
Based on the limited facts, you could potentially have issues with self-dealing. If this occurs, that would be a very costly issue.
So as stated by @Anonymous_, you are not eligible to file a partnership return for 2022; as there is no longer a partnership.
I strongly suggest you consult with a tax professional (or the trust department of a bank) knowledgable in the area of partnership tax AND partners that are IRA's.

*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.