Non-Operational Parntership LLC & 1099-INT from IRS

[ssp616]

Hello,

My brother and I have an LLC parntership that we created and promptly did nothing with it. We definitely should have closed it years ago, but we haven't. We've filed the 1065 every year, but it's always all zeros and implies no operations for the tax year.  In 2021, the IRS decided that we had filed it late for 2 prior tax years and charged penatlies. I promptly paid those out of my own personal account. Last year, the IRS realized they were wrong and refunded the payments plus interest. 

Now we have a 1099-INT for $44 and I had to deposit the treasury checks by opening a new busines account because that's who they were payable to. I don't know what to do with this year's 1065. No money has been paid out to anyone. Do I list the cash as an asset and interest as income. If we have no distributions, can the K-1s still be all zeros?

[PatriciaV]

Yes, as long as the cash is held in the business name, you have assets equal to the bank balance. Form 1099-INT should be reported as income on the partnership return.

Since you paid the IRS penalties from your own funds, the refunds should have been reimbursed to you. You can empty the bank account by reimbursing yourself for the out-of-pocket payment and distributing the interest according to the partnership agreement. These will be transactions for tax year 2024.

If you have no plans to continue this partnership, you should dissolve the partnership and file a final tax return next year. This will inform the IRS not to expect any more filings from this business.

You may also need to inform your State Comptroller that the business has ended.

[ssp616]

Thank you, Patricia! You answer was very helpful. Let me make sure I am understanding correctly.

For the 2023 1065:

Assets = bank balance

Income=1099-INT

I am not sure what needs to be reflected on the K-1s since we've never had to deal with those before because they were all zeros. 

[PatriciaV]

TurboTax Business will complete the Schedules K-1 from the information you enter for the partnership. 

You will need to enter information for the partners/members, including their capital balances, which should be an equitable split of the bank balance. You won't actually report the bank balance on the tax return. 

This is a fairly simple LLC return. But if you need individual help, consider signing up for TurboTax Assisted Business, which provides unlimited expert help as you work on your return.

[ssp616]

Thanks! Appreciate your help!