Switch LLC to Scorp

[chuckstark]

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"?

[Rick19744]

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?

[chuckstark]

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 · Accepted solution]

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.

[chuckstark]

Thanks!  I appreciate the help.

[Rick19744]

Welcome.

[Andre2099-B]

What does 'basis' mean in terms of numbers? 

I am closing our Partnership and this is the last filing. I need to dispose of the assets. We opened the same business for 2020 but as a sole proprietor.  

I don't know what "Share basis" means or what someone else said "Tax basis" means in terms of what to put in the amount sold. Please translate. 

I don't want to pay capital gains for what essentially cost us money and should be a deduction. Can we just put in $1 for each asset?

[Rick19744]

Need some additional facts:

• What happened to the assets of the partnership? 
• What type of assets are we talking about?
• How many partners were there in the partnership?

[JamesG1]

'Tax basis' for your purposes is the 'adjusted cost basis' or 'basis' in the assets of the partnership.

Review here for basis considerations.