As noted above, you should consider discussing this with a tax professional. Tax law is complicated and partnership tax in particular is clearly at the top of complicated areas of the tax code.
There are a number of items to consider here:
- The partnership (LLC) cannot technically file a final return until the final distributions are made. While you might be able to accrue the distributions for book purposes, you cannot accrue distributions for tax purposes.
- You are in a winding down of the business and technically the partnership does not terminate until the winding down events are complete.
- Based on the above two items, your 2016 tax return should not be a final tax return.
- Things can change, expense estimates can vary which will impact any final cash distribution. Until the member's receive their final distribution they are not able to determine their respective gain or loss on their investment. This will occur in 2017.
- While it is too complicated to discuss in a forum such as this, liabilities of the partnership need to be considered. Did any member use debt basis to take any prior losses? If so, this adds a level of difficulty and possibly recognition of income (at-risk recapture).
- Filing your 2017 return should not be that big of a deal if everything else goes according to plan. Once all the final expenses are paid in 2017, which technically accounted for in 2016, the only thing left to do is make the cash distribution, reflect this on the K-1 and mark the return and all K-1's as final.
*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.