Final K1 entries

[Nasdaqsam]

This is regarding a final k1 for a private company we bought a partial interest in from a member.  The way it worked is there were several of us that bought a single share of this company from a member. The company had 8 outstanding shares representing a 40% stake in the company the remainder was retained by the managing partner (owner). The managing partner would not allow us to break up the single share we bought, he wanted to keep it as one share with one K1 produced for the share. As an alternative we formed an LLC that the kept the share whole. When the LLC received the yearly K1 we would forward it to an accountant who would then issue each of us our own K1 for our portion of that share. For me this started in 2016. The company was sold in 2021 and we were issued final K1's. 

I am trying to figure out the sale price and the basis. 

When the final K1 and check was issued it came with a letter from the managing partner stating this is the final K1 and that the enclosed check is a partial final payment and there "could" be a little more coming once all the details were ironed out. We still have had no word if any further funds are going to be issued. Since this letter the managing partner has for the most part remained silent as to whether there will or will not be anything further coming. For the sale price the K1 reports a higher amount than the cash received for the sale. 

Basis: The initial K1 from our LLC started with a capital acct of $0 since we bought our portion from a member (for a price of $62,500) and not the company. This would be my outside basis. On the K1 the capital contributed the initial year was $43,417. The final K1 shows a beginning capital acct balance of $74,077 and final balance of $0. To me it would seem my basis would be the initial investment (outside basis) of $62,500 and the difference between the ending balance before distribution of $74,077 less the initial value I bought of $43,417 equaling $30,660 increase in capital acct over the years plus $62,500. Basis $93,160. ??

On the sale price I believe I need to enter the distribution amount shown on the K1 and not the amount of the check received. Would this be correct? For reference the distributed amount shown on the K1 is $83,777. The actual amount received was $63,750. But again there "could" more coming. 

Thank you in advance for any assistance offered. 

[Critter-3]

You say you have an accountant that is completing this partnership or corp return for this LLC situation you all set up ... why are you not asking them this question ?   Everything you need should flow thru from the final K-1 form that LLC issues from the final K-1 the LLC got. 

[Nasdaqsam]

Thank you for the reply. We use an accountant for the LLC but I typically do my own personal taxes. Producing the K1 doesn't include what we do with them once produced.

[Rick19744]

Here are some comments:

• Partnership tax can become complicated very quickly; regardless of the size of the entity
• The 8 of you formed an LLC.  The contribution of each member to the LLC is the beginning point for your tax basis in the LLC.  This is one critical factor.
• The LLC then made a contribution to the "private entity".  This is the beginning point for the tax basis of the LLC in the private entity.
• Each subsequent year, your LLC and each of the 8 of you received K-1's.  The LLC and each of the 8 members needed to adjust their tax basis for the applicable lines of the K-1.
• In the final year, you need to update the LLC tax basis for the final K-1 amounts, EXCLUDING any final (liquidating) distribution.
  • The LLC then needs to determine the overall gain or loss on liquidation.
  • The final (liquidating) distribution is the "sales" price and the tax basis is the cost basis.
  • This step, from your facts, is accomplished by the accountant.
  • Technically, there should not be any "distribution" reflected on the final K-1 to the 8 LLC members.  This is because liquidating distributions should be reported on a form 1099-DIV and not the K-1.  This is not always done correctly by practitioners.
• So at this point, the LLC issued final K-1's to the 8 members.
• Each member should have been maintaining their tax basis in the LLC as explained above.
• At this point, each member needs to update their tax basis for the applicable lines on their respective K-1.
• Just as noted above, if the liquidating distribution is reported on the K-1, do not include this in determining your final tax basis.
• The final (liquidating) distribution will be the "sales" price and your tax basis will be your cost basis.  TT will ask questions when you indicate that this is the final K-1.  

[Nasdaqsam]

Thank you for the reply. Your explanation was very helpful. 

[Rick19744]

You are welcome.