Leaving from LLC company

[loveofla1233]

Hey everyone

i had a partnership with another person and it was LLC company.

i assigned my share to new member and I left the company, this was happened in August 2019 . So im filling my taxes right now, should i put business in my taxes form or i shouldn’t put it since i quit. I didn’t take any penny from there. Thanks.

[Rick19744 · Accepted solution]

LLC's taxed as a partnership are complicated, especially when member's come in or leave.

There are several issues here that need to be addressed:

• Hopefully you have been maintaining your basis in the LLC.  This is critical, as without it, you will not be able to compute your overall gain or loss.
• Based on your limited facts, it appears that the LLC went from a two person multi-member LLC taxed as a partnership, to a single member LLC which will now be taxed as a sole proprietorship by the remaining member.
• If bullet two is correct, the LLC will need to file a final return for the period ended in August 2019 when you left the LLC.  If this has not occurred, the LLC return is late and the penalties are $205 per month per partner / member.
• Once the LLC has filed the final tax return, you should receive a K-1 that indicates final as well.  You will need in input the information from the K-1 into your personal tax return just as you have done in the past.  You will need to indicate in TT that this if a final K-1.  TT will then ask information related to the termination and compute your overall gain or loss; this is why bullet 1 is important.
• There are several factors in which some of your gain (if you have a gain) may be taxed as ordinary income instead of capital gain.  
• As you can see, there are a number of issues here in which consulting with a tax professional could be helpful.

[loveofla1233]

Thanks you for your response, I appreciate it. I have additional information and questions.

1-what do you mean by maintaining your basis? To be honest i left that company long time ago but on the paper it was august 2019. As i said I didn’t take any penny.

2- it was 2 members , I transferred my share another person so they continued with 2 members llc , just members exchanged.

3-i need to do my taxes right now, i believe they will do it later, i just dont wanna pay penalty cuz of filing without k1 . If they show my income 0 , still do i need to file k1? 

[Critter]

The Partnership MUST complete it's return FIRST then the K-1 form that is issued to you is entered on your personal return.   The person in charge of filing the Partnership return should seek local professional assistance to get this difficult return completed ... the change of partners mid tax year is not an easy thing to do especially if good books were not kept.  Hopefully the partnership return is on extension since it was due 3/15/2020 and the late filing penalties are adding up quickly.

[Anonymous]

your initial basis is the value of cash or property you put in to the partnership.  it goes up by profit down by loss and distributions and up by any section 751 income realized upon disposition.   if it is using the cash basis to report income upon disposition you'll have, if the return is done right {sec 751 - (a)Sale or exchange of interest in partnership - The amount of any money, or the fair market value of any property, received by a transferor partner in exchange for all or a part of his interest in the partnership attributable to— (1)unrealized receivables of the partnership, or (2)inventory items of the partnership shall be considered as an amount realized from the sale or exchange of property other than a capital asset}. compare what you got, if anything upon transfer with your basis.  that is capital gain or loss. 

income is supposed to be allocated 1 of 2 ways.   specific allocation.  the books of the partnership are in effect closed on the date of transfer and profit or loss for the period is determined.  then you are allocated your share based on your ownership % before the transfer.  or per share ber day method.     the income/loss for 2019 is divided by 365  and multiplied by the number of days you held your interest and then by your ownership %.

things become more complicated if there were loans used for basis.  or if you had a 50% ownership interest then there was a technical termination of the partnership under reg 1.708-1(b)(2)

the partnership should consult a pro to make sure the proper reporting is done.   

there can be substantial penalties if things are messed up

Failure To Furnish Information Timely
For each failure to furnish Schedule K-1 to a partner when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $270 penalty may be imposed for each Schedule K-1 for which a failure occurs. The maximum penalty is $3,339,000 for all such failures during a calendar year. If the requirement to report correct information is intentionally disregarded, each $270 penalty is increased to $550 or, if greater, 10% of the aggregate amount of items required to be reported. There is no limit to the amount of the penalty in the case of intentional disregard.

[Rick19744]

Based on your response to my initial comments, this appears messy and a forum such as this is not conducive to handling a complicated matter such as this.

You also indicate "....I left the company long time ago..."

This could mean you filed an incorrect tax return in a prior year depending on what this time frame really is.

You need to have a one on one with a tax professional to work out the details so you can file an accurate tax return.

[Carl]

From reading through this tread to see if I can help, it's become apparent to me that you are clueless. Hey, it's not like you learn this stuff through osmosis.

If you left the company in 2019 then you "should" have been issued a final K-1 which you will require before you can even start your personal 1040 tax return. I would highly suggest you seek professional help yesterday, if not sooner. This is especially important if your state taxes personal income. Doing things wrong, or not doing them at all will cost you dearly in the way of fines, penalties and back taxes. That would make the cost of professional help seem like a pittance in comparison. So please seek professional help for the sake of your wallet.