LLP to LLC

[Jeff2112]

We currently have a 2 person LLP. My 85 year old father is retiring. I'll be continuing, but I'm thinking switching to a single person LLC and being taxed as an S-Corp is the way to go. Would I need to file form 8832 or 2553? What if any forms would I need to file with the state to make the switch from LLP to LLC? I'm based in Vermont.

[tagteam]

You absolutely need local legal and tax counsel for this transition on the federal and state level.

See https://www.avvo.com and https://taxexperts.naea.org 

In order to elect S corporation status, eligible entities need to file Form 2553.

See https://www.irs.gov/instructions/i2553#idm139773144446592

[Carl]

YOu need legal help with this.

Basically, the LLP will be closed permanently and forever. All LLP assets and inventory has to be liquidated. Generally, assets and inventory are "removed for personal use" by at least one of the partners.  Then a final 1065 partnership return has to be filed with final K-1's issued to all owners. They'll need the K-1 for completing their personal 1040 tax return.

Next, a completely new business is opened. But I would suggest you not waste your time with LLC status if your desired end goal is to have an S-Corp. Remember, when an LLC files IRS Form 2553 to be "treated like an S-Corp", that election is for *TAX* *PURPOSES* *ONLY* and nothing else. So if your company is sued, it's the LLC that gets sued. For anything *outside* of taxes including all non-tax legal matters, the S-Corp does not exist.

So seek legal counsel on this and just open an S-Corp from the get-go and be done with it.

[Jeff2112]

Funny, not really, a local tax service suggested the LLC w/S-Corp declaration, but I'm here because it didn't sound quite right. Can I do a straight  S-Corp with only myself? As far assets & inventory, Dad's giving it all to me. We have one 2 year old service vehicle, a bit of stock on hand(we sell/install/repair consumer electronics, mainly Dish, DirecTv & off-air antennas). We don't subcontract to anyone. Various hand tools collected over the years, etc. No property. We've always operated as a call in business and I'll continue to going forward. 

[tagteam]

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@Jeff2112 wrote:

...Can I do a straight  S-Corp with only myself?...

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Yes, S corporations can have only one shareholder (owner).

[Rick19744]

You would think that a small business only has small tax problems, but unfortunately, regardless of the size, the tax implications are just as difficult.

You have a number of issues to address and I would agree that meeting with a tax professional would be a wise decision.  However, based on your comments, which albeit sparse, I am not sure that who you met with gave you adequate advice.

Some comments:

• It seems very odd that based on your facts you are an LLP.  These are typically professional firms that are attempting to limit liability to specific partners based on a specific instance(s).
• Becoming an LLP or LLC is something that needs to be handled with the Secretary of State office of your state.  Not all states allow an LLP to convert to an LLC.  You will need to call your Secretary of State to determine if a conversion is allowed under state law.
• Regardless of whether a conversion is allowed, there are many tax consequences that need to be addressed with your father retiring; liquidating distribution (is this a proportionate liquidating distribution), impact on basis of assets, etc.  While the numbers may not be large, you still need to get to the right result.
• If you are not allowed to convert to an LLC under state law, then you will have a liquidating distribution for both partners.  You would then need to register and form a new business entity under state law.
• Get professional advice on whether it makes sense to form an LLC and elect S corporation status.  This is done in some instances where the business "formalities" are much easier as an LLC for state law purposes.  As noted, even though you form an LLC under state law, if you elect S corporation status, you are an S corporation for federal and state income tax purposes only.  
• As you can see, there are many issues and limited facts.  This forum can only provide you with some general direction.

[tagteam]

Reading through the original post again, it occurred to me that @Jeff2112 might have been referring to a multi-member LLC as an LLP.

As @Rick19744 stated or implied, it would be rather odd that a father-son business would choose an LLP as an entity type. @Jeff2112 should clarify if that is, in fact, the case.

[WishVah]

I have a similar question.  I have a 2 member "Domestic LLC".  I have been filing From 1065 Federal and Form 165 for State income tax returns.  I would like to convert the 2 member LLP to an LLC, so I don't have to go through the hassle of the tax returns and instead show the LLC income as pass through to 1040.

Do I still need to liquidate assets of the LLP and restart a new LLC or can I convert the current LLP to an LLC ?

I am in AZ, by the way

Thanks

Vishwa

[Rick19744]

You need to discuss this with either legal counsel or your State Secretary.

This change is a state legal change.

Having said that, based on your limited facts, doing so makes no sense since a 2 partner LLP and a 2 member LLC both file the exact same federal form; form 1065 and both provide a K-1 to the partner / member.

There are way too many issues that should be addressed and this forum is not conducive to do that.  I recommend you consult either an attorney that understands tax law, or a tax professional.

Finally, your facts are very unclear as you initially indicate you are a 2 member LLC, but then say you want to convert the 2 member LLP to a LLC.

Regardless, you need to have a one on one with a tax professional.

[Jeff2112]

We/I ended going to a lawyer and the plan was/is to open a single man S-Corp, named after me, while keeping the LLP open until the S-Corp is built, then shutting down the LLP and using the name we've used for the LLP as a DBA under the Inc. The lawyer said we should do it this way so not to risk losing our longtime company name. I got notice of the S-Corp being established, then Convid happened. Haven't heard hide nor hare from the lawyer, they're all working at home, but apparently didn't forward their phone. No problem, for the first time in over 40 years of working I'm able to collect unemployment, thanks to the PUA. I'm self employed and work in a variety of homes and businesses(lots of hospitals & nursing homes), so I'm sitting tight, as is dad who's collecting too for the 1st time ever at 85. I'm not sure how things would have shaken out if everything had been switched in an expedient manner. Right now I'm honing my new side hustle/hobby skills of refurbing pinball machines. Have 4 former dead soldiers back in working order so far.