Partnership to SMLLC

[ALBTAX]

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?   

[tagteam]

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]

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]

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]

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.

[ALBTAX]

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]

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.