Ownership of LLC changed by adding spouses as equal members. How do I file this change?

[mahanten]

Last February my 2 member LLC added two additional members (spouses) and redistributed the capital accounts so the spouses have equal ownership to their respective husbands. This means ownership changed by exactly 50%. Both families file jointly so the net income or loss to the family remains the same just with two K-1's vs 1.  I believe I need to do a close out 1065 for the original company and request a new EIC for the new 4 person LLC.  The change happened Feb 1, 2024.  How do I file a close out for the old company and a new 1065 for the new company in the same year?

[PatriciaV]

You don't need to terminate a partnership when the ownership changes. Simply report in TurboTax Business that you had an ownership change under Business Info >> About your Business (last question).

When you go to Partner/Member Information, edit each existing partner to adjust their capital accounts for the change. Then add the two new members. Continue at the bottom of the Member Summary page, confirm the date of the change, then enter the percentages before and after that date.

If you added two members, regardless of their marital status, you would prepare Schedule K-1 for each member. This is especially true because you redistributed the capital accounts to the new members. 

You may need to make special allocations to be sure the activity is allocated correctly and to adjust the capital accounts. This is done in Forms Mode on the Schedule K-1 Worksheet. To do this, first check the box for "Has special allocations" under About Your Business. Then look for "How to Enter Special Allocations" demo after you enter the new percentages.

This is a complex and tedious process, and you may consider upgrading to TurboTax Live. This online service provides step-by-step guidance from a tax expert whenever you need assistance, either over the phone or by screensharing. You may find the time savings is worth the additional cost.