My father passed away in 2012. To manage my Dad's real estate assets until the assets could be sold, my older brother set up an LLC in North Carolina listing all siblings as passive partners. Working with a local CPA, my brother generated an annual schedule K-1 which family members used to prepare personal income taxes. I dutifully prepared returns from 2012 and onwards using TurboTax, answering all question prompts related to the LLC.
The real estate assets had all been sold by late 2018, and the LLC had been legally dissolved. The CPA issued a 2018 schedule K-1 with the "Final K-1" box checked. TurboTax didn't ask about the status of this checkbox nor did I understand that the designation created a "taxable event," and so I just filled out the tax forms with zeros for the K1 values and moved on.
Until 2021. In preparing taxes this year, I noted this large unallowed passive loss that had also been on my books in 2018, 2019 and 2020. Conducting some research, I finally determined that in 2018, I should have told TurboTax that the LLC had been closed and provided some terminal values so that unallowed losses could be released. I discovered this error to late, unfortunately, to file an amended return for 2018, the year in which the error had taken place, due to the IRS 3-year rule for requesting refunds.
So my question for the 2022 tax year: do I just leave the dissolved LLC on my tax form as though it were still active, and look for a new source of passive gains to offset the unallowed losses? Or do I need to bring the IRS up to date on the LLC dissolution using some other form that allows me to start with a clean slate for 2022? It would seem to me that if I "dispose of the LLC" in 2022 while the actual dissolution took place in 2018, then the IRS could have a problem with that.
I will eventually hire a CPA to figure this out -- who knew you couldn't rely on TurboTax to handle a LLC dissolution? -- but thought I would get a grounding on next legal steps required before moving forward. Thanks!
