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New Member

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?

My dad transferred his LLC rights to me on December 31st, 2017.  The LLC does not have any income or expenses so I do not have to file Form 1065.  How do I send form 8832 to the IRS to let them know it is now a disregarded entity.

From the form instructions:
" If the entity is not required to file a return for that year, a copy of its Form 8832 must be attached to the federal tax returns of all direct or indirect owners of the entity for the tax year of the owner that includes the date on which the election took effect."

Does this mean that my dad needs to attach it to his return as well as mine?

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Accepted Solutions
Level 10

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?

Based on your facts, it appears that you and your Dad were in a partnership together (multi-member LLC taxed as a partnership).

If that is the case, then on 12/31/2017, once your Dad "transferred" his interest to you, the multi-member LLC became a single member LLC which by default is a disregarded entity.

Once this occurs, there is no need to file form 8832 as becoming a single member LLC is the default.  You do, however, need to file a final form 1065 for 2017.  Both the return and K-1's need to be marked final.  You could add a statement to the final form 1065 detailing what occurred and that based on IRC Section 708(b)(1)(A) the partnership terminated and that in accordance with Regulation 301.7701-3 will now operate as a single member LLC.

There are several additional issues that need to be addressed by you:

  • Your Dad's "transfer" sounds like a gift, so a gift tax return may be necessary
  • Your facts don't indicate what was in the LLC, but you will step into the same basis as what your Dad's basis was in the assets at the time of the "transfer" / gift.  If these are depreciable property, then you also inherit any depreciation recapture upon disposition of the assets.
*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

7 Replies
Level 10

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?

Based on your facts, it appears that you and your Dad were in a partnership together (multi-member LLC taxed as a partnership).

If that is the case, then on 12/31/2017, once your Dad "transferred" his interest to you, the multi-member LLC became a single member LLC which by default is a disregarded entity.

Once this occurs, there is no need to file form 8832 as becoming a single member LLC is the default.  You do, however, need to file a final form 1065 for 2017.  Both the return and K-1's need to be marked final.  You could add a statement to the final form 1065 detailing what occurred and that based on IRC Section 708(b)(1)(A) the partnership terminated and that in accordance with Regulation 301.7701-3 will now operate as a single member LLC.

There are several additional issues that need to be addressed by you:

  • Your Dad's "transfer" sounds like a gift, so a gift tax return may be necessary
  • Your facts don't indicate what was in the LLC, but you will step into the same basis as what your Dad's basis was in the assets at the time of the "transfer" / gift.  If these are depreciable property, then you also inherit any depreciation recapture upon disposition of the assets.
*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

New Member

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?

The LLC has no assets and his transfer was under 10% of the business (which has no value). Does that mean I just file a final 1065 and k1 for each of us and the IRS will know I am now a disregarded entity?
Level 10

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?

Yes and attach a statement as noted above.
*A reminder that posts in a forum such as this do not constitute tax advice.*
New Member

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?

I am using TurboTax Business 2017 and have marked 1065 and k1 as final. Where do I put a comment about how it is now a disregarded entity?  Do I need to file for a new EIN? This link seems to tell me I do.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein">https://www.irs...>
New Member

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?

Hello @Rick19744 , I believe I am in the same boat as the OP. Can you please also take a look at some questions I'm having?

 

I've already filed form 8832 to retro the election to 1/1/19. I expect then to have to revise my 2018 return.

 

  1. If I mark it final, does that nuke my EIN? I guess, as a disregarded entity, do i no longer need an EIN? I have many state and business related licenses linked to that EIN, so I hesitate to completely rid myself of that number altogether. 
  2. Do i then have to create new K1's amended w/ final? NJ-K1's with final? And amend my dads 1040 and my joint (w/ spouse) 1040?

Thanks for your time!

Level 15

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?

Where do I put a comment about how it is now a disregarded entity?

Nowhere. When you file a "final" 1065 and issue the "final" K-1's, the partnership is closed/dissolved and no longer exists.  It's gone permanently and forever, vanished into la-la land to never be seen or heard from again.

So there's nothing in existence to "convert" to anything. 

What you're doing is a two-step process that it's clear you don't understand yet. So I'll try to explain it here.

The partnership is "going away" permanently and forever with the filing of the "final" 1065 and the issueance of the "final" K-1's. The ending balance on everything for the partnership *MUST* be zero with the final 1065. 

 

If the partnership carried any inventory, then the End-of-Year (EOY) inventory count *MUST* be zero. If it's not zero, then the partnership continues to exist. So even if one of the owners/partners has to indicate that all remaining inventory was "removed from the business for personal use", then that's what you do. It's not up for debate.

 

If the partnership had any assets listed in the Business Assets section, then all of those assets must be disposed of by the partnership one way or another. Typically for a situation such as yours, it would be indicated that the asset was "removed for personal use". However, if the listed asset was a capital contribution made by one of the partners, then you must show the return of that asset to the contributing partner on the K-1 in order to remove it from the business. 

 

If the partnership had *ANY* vehicle use in *ANY* year while it was operating, then that vehicle also has to be disposed of by the partnership.  Even if the business use was less than 100%. How it's disposed of by the business can get complicated, because it depends on how it was acquired by the partnership. Did the partnership buy it? Lease it? Maybe it was a capital contribution by a partner to the partnership? Something else?

 

Finally, any money left in the partnership after paying all debt the partnership is liable for *MUST* be distributed to the partners and shown on the K-1 as income to that partner or partners. The balance sheet on the partnership *MUST* be zero for everything. No ifs, ands or buts on that either. The IRS says so.

Now the above just covers closing the partnership. That's it. If you will be the sole owner of the business now, then you have a sole-proprietorship or single member LLC which is reported on SCH C as a physical part of your personal 1040 tax return. Transfering/entering assets and inventory correctly since they are transferred from the now-closed and defunct partnership can be it's own beast. Doing it wrong will cost you dearly too. For example, if you have assets to transfer, then it doesn't matter if that asset is fully depreciated or not. *YOU* also have to "take" all that prior year depreciation that was claimed by the partnership. That means the business "start date" on your SCH C will *NOT* be the year you became sole owner of the business. It will be the day/year the partnership originally opened, even if it was 50 years ago.

So as you should see by now, this ***CAN*** be extremely complicated if you don't know what you're doing. While I'm perfectly willing to help here as questions arise (and questions will arise) you may find it more economical to sell professional help to deal with this and educate you one it. Doing things wrong will cost you dearly when the IRS catches it, and the fines, penalties, interest and back taxes can have the potential to bankrupt your "new" sole-proprietorship/single member LLC before it has a chance to even get off the ground on it's own.

 

Level 15

How do I send Form 8832 to change from partnership to disregarded entity when I am not required to file 1065?


@vm0824 wrote:
If I mark it final, does that nuke my EIN? 

Yes. You will need an new EIN (at least you cannot continue to use the old EIN).

 

See https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein