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

[jgb]

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!

[Rick19744 · Accepted solution]

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.

[jgb]

Thank you Rick! So the partner receiving the $1200 doesn't need to file 8949? K-1 Part L is enough to show that it does not exceed his basis?

[Rick19744]

In general. there is no gain or loss.
Having said that, when you are entering the information into TT, the software will ask if you have disposed of the investment (K-1).  You will then need to say "yes".
As part of the interview question process, you will be asked for the cost basis and selling price (yes you will need to indicate you sold it).  Here you will enter the liquidating distribution amount of $1,200 (selling price) and the cost basis of $1,200 which generates no gain or loss.
So I modified my response above as you will need to complete form 8949 and Sch D.