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Level 2

Partner forced out and then the partnership never filed.

A partner was forced out of a partnership (formed in 2018) two weeks before the end of 2018 and replaced with another partner. Then the partnership never filed the 1065.  How does the partner that was forced out report her loss from the business activities since she funded the startup of the business? 

2 Replies
Level 19

Partner forced out and then the partnership never filed.

can't say.   normally income/loss should have been allocated on a per share per day basis or specific accounting.   However, the partnership agreement if there was one, could provide for a different allocation.  you should have gotten a k-1.   in addition a 1065 should have been filed.  failure to file  penalties are around $200 per partner for each month late.  about $2,000 or more by now if no extension filed.  in addition how can partners report their share of profit or loss if no return was prepared or filed.    if significant,  partners could face heavy tax penalties for improper reporting 

 

there is also the possibility that if a 50% partner was forced out there was a technical termination of the old partnership and a new partnership came into existence when the new partner came in.

 

the best advice,   the partners need to consult with a tax pro to get the returns filed.  if they won't participate, you may need to consult with an attorney.      

Level 14

Partner forced out and then the partnership never filed.

Some comments:

 

  • Your facts don't mention how many partners are involved, but every partner in the partnership needs a K-1 to complete their personal tax return.
  • As was mentioned by @HACKITOFF , if the 1065 was not filed, there are penalties assessed to the partnership for late filing and as you can see, the penalty amount can add up quickly.
  • While there appears to be a change in ownership, the technical termination rules have been eliminated so there is no longer two short period tax return filings.
  • I am assuming from the limited facts that you are the partner that was forced out.  You need to follow up on several items:
    • Review the partnership agreement as to the impact on a partner separation
    • Inquire as to when you will receive your K-1 which should be marked as final
    • Depending on the dollars involved do you need to consult with an attorney.  This depends on the partnership agreement and whether or not you are receiving an accurate redemption payment
  • You hopefully have maintained a basis schedule of your investment in the partnership.  This will determine your overall gain or loss on the investment.  However, this can only be determined once you receive your final K-1.  An estimate is technically not permissible.
  • Should you correspond with the partnership regarding a final K-1 and you don't receive any response, you need to document your attempts and retain these documents.  If you don't get any response from your attempts, then you may be able to claim your loss in 2019 (2019 tax filing).  But the key is you need to be able to provide documentation that you attempted to get the information, it was not provided, no response from the partnership and doubtful anything will change.  This information will help in supporting your claim for any loss on your investment.
  • As noted by @HACKITOFF , depending on the $$ involved it may be in your best interest to consult with a tax professional.