Switch LLC to Scorp

8 replies
109 views

I am converting my California LLC multi-partnership to an S-Corp. In Turbo Tax to I check the box stating "the partnership ended in 2017"?

And, if I so, what do I enter in the "Describe Partnership Disposal"?

TurboTax Home & Biz Windows

Rick19744Answer

Level 13

Perfect.

Technically the partnership / LLC has liquidated and the deemed transaction is that all assets and liabilities were transferred to the corporation (which elected S status) in exchange for the stock of the corporation. The LLC then distributed the stock to the members in liquidation of the partnership / LLC.

The best avenue in TT is to say that you "sold" your interest. There will be a set of questions and here you will use your tax basis as both the basis and selling price which will reflect the transaction, but not generate any gain or loss; as there should not be any recognized gain or loss on this conversion.

Now, having said that, there is a trap for the unwary. If any member used debt in the past to take a loss on their personal tax return there is potential for at-risk recapture. This is a complicated area and if a member has this scenario, I recommend you consult with a tax professional.

Finally, your stock basis in the S corporation is the same as your basis was in the LLC.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

Rick19744

Level 13

A couple of questions:
1) Have you filed the appropriate forms with the IRS and received approval?
2) Are you or have you filed a final form 1065 for 2017?

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

C

chuckstarkAuthor

Level 2

Yes, we have filed the appropriate forms. We have not received approval yet but don't expect any issues.
We did file the final 1065 for 2017. thanks!

Rick19744

Answer

Level 13

Perfect.

Technically the partnership / LLC has liquidated and the deemed transaction is that all assets and liabilities were transferred to the corporation (which elected S status) in exchange for the stock of the corporation. The LLC then distributed the stock to the members in liquidation of the partnership / LLC.

The best avenue in TT is to say that you "sold" your interest. There will be a set of questions and here you will use your tax basis as both the basis and selling price which will reflect the transaction, but not generate any gain or loss; as there should not be any recognized gain or loss on this conversion.

Now, having said that, there is a trap for the unwary. If any member used debt in the past to take a loss on their personal tax return there is potential for at-risk recapture. This is a complicated area and if a member has this scenario, I recommend you consult with a tax professional.

Finally, your stock basis in the S corporation is the same as your basis was in the LLC.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.