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ALBTAX
Level 1

Partnership to SMLLC

Partnership A had two partners. Partner 1 & Partner 2. Partner 2 sold his interest in the company and Partnership A became a Single Member LLC (SMLLC). Partnership A is a partner of Partnership B. What are the steps to change the entity type from Partnership to SMLLC and how do you address Partnership A's interest in Partnership B if Partnership A is no longer a partnership?   

6 Replies
tagteam
Level 15

Partnership to SMLLC

You are correct in stating that Partnership A is no longer a partnership (a partnership cannot have only one member).

 

Also, are you using TurboTax? Partnership B still needs to file a 1065. Partnership A needs to file a final 1065.

 

I will page @Rick19744 for particulars.

Carl
Level 15

Partnership to SMLLC

Basically, the partnership was dissolved on the date their were no longer two or more owners. So a final 1065 would need to be filed and depending on the state, if state registration of the partnership was required, then a partnership dissolution would need to be filed with that state. 

The remaining owner will report all business income/expenses on SCH C of their personal return, with all business income/expenses being reported effective on the start date of the SMLLC.

TYpically, the start date of the SMLLC would be one day after the date the partnership was dissolved.

 

tagteam
Level 15

Partnership to SMLLC

The SMLLC is a partner in another partnership (Partnership B) and, as a result, would be receiving a K-1 from Partnership B when it files its Form 1065.

Rick19744
Level 12

Partnership to SMLLC

Partnerships are complicated structures regardless of size:

  • There are limited facts to provide much guidance
  • It may be in your best interest to get some professional advice in winding up partnership A
  • Your situation is discussed in revenue ruling 99-6
  • As noted, there will be a final 1065 required, liquidating distributions, you may have bifurcated holding periods on assets, possible recapture for the former partner, form 1099-DIV reporting for the liquidating distributions,etc.
  • I would recommend you review the above revenue ruling and circle back with additional facts and questions.
*A reminder that posts in a forum such as this do not constitute tax advice.*
ALBTAX
Level 1

Partnership to SMLLC

My question is if Partnership A is now a SMLLC reported on a Sch. C, then how do they receive the K-1 from Partnership B? 

Rick19744
Level 12

Partnership to SMLLC

As is discussed in the revenue ruling, the former multi-member LLC is now a SMLLC; a disregarded entity.

You need to provide partnership B with a revised form W-9.  This will provide partnership B with the necessary information for the k-1 going forward.

Your future k-1 items from partnership B will be reported in various forms in your 1040 depending on what is flowing out to you.  Your facts don’t provide any detail on what partnership B activity entails.

*A reminder that posts in a forum such as this do not constitute tax advice.*
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