Final 1065/k-1 How to deal with Liquidating Distribution/Return of Capital

Forum|Forum|7 years ago
June 8, 2019
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I am closing an LLC and preparing final 1065 and K-1s. One partner has tax basis ending capital amount of $1200. The other members have $0. If there is exactly $1200 cash available, does the LLC pay that member $1200, record it as a withdrawal in his K-1 part L (bringing his final capital to $0), and box 19 as a distribution?

If the answer is yes, does the LLC need to issue a 1099 div to him? Or is the k-1 sufficient record of this?

Would the partner then file form 8949 showing the cost and the proceeds to be $1200, with $0 gain? He's not really "selling" his shares, but just getting his balance back.

Thanks for your input!

Best answer by Rick19744

Without the history it is odd that the capital accounts reflect what you indicate above.

Without going into the complicated discussion of partnership 704(b) regulations, I would say that if you do have $1,200 in cash then that should go to the partner with the $1,200 tax basis ending capital. This results in what I would expect to see in the end. In general, the regulations state that liquidating distributions should be distributed to partners with positive "capital accounts". Note, however, that when the regulations refer to capital accounts this is technically not the tax basis capital account, but I believe you are arriving at the correct result; tax basis capital and "capital account" as referenced in the regulations could be the same but generally not.

You report that on the K-1 as you noted and no 1099-DIV is required.

There is no reporting required when distributions do not exceed your basis.

However, you will need to report the liquidating distribution figure and cost basis on form 8949 and Sch D, but since they offset there will be no gain or loss.

Rick19744

Answer

Level 13

Without the history it is odd that the capital accounts reflect what you indicate above.

You report that on the K-1 as you noted and no 1099-DIV is required.

There is no reporting required when distributions do not exceed your basis.

However, you will need to report the liquidating distribution figure and cost basis on form 8949 and Sch D, but since they offset there will be no gain or loss.

*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.