Hi, all. I'm planning to acquire my partner's share in our partnership and intend to convert it to a single-member LLC taxed as a sole-proprietorship. The transition would be effective January 1. I'm planning on filing a 1065 and K-1s for the last year of the partnership (both marked "final"), but have come across a couple of questions which I'm hoping someone can provide some guidance on. Specifically:
- On the final K-1s, would the share of profit/loss/capital end at 100% for me and 0% for my partner, or stay the same (50/50) as it always had? I'm not sure how the forms reflect the timing of changing ownership effective on January 1 (at the start of our new tax year, and not in the middle of a tax year) since the K-1s would technically be for the previous year.
- If the ending share should be 0% for my partner, would the "Check if decrease is due to sale or exchange of partnership interest" box be checked in this scenario? If so, does checking this box bring forth any other requirements?
Also, one other general question, if you don't mind: when zeroing out the balance sheet for the transition from partnership to sole proprietorship, is it accepted to leave an amount of cash in the business that covers liabilities (for us, it's just a contract to pay monthly for a software suite over the next year or so), or does all cash need to be distributed? All other assets would be zeroed out.
Thank you for your time!
