Business & farm

A few comments regarding your situation:

• As noted, if you are wanting to have the LLC terminated at the end of the year, you will have a final form 1065.  
• As a member in an LLC taxed as a partnership, each member is required to maintain their tax basis in this investment (ownership in the LLC).  Maintaining your tax basis is critical in being able to determine annual tax impact of income, losses, gains and in your specific case, the tax impact of the liquidating distribution.
• In most cases, when property is distributed (in an ordinary distribution) from the LLC taxed as a partnership it has a carryover basis to the distributee.  However, in a liquidating distribution, property distributed to a member gets a substituted basis.
• Determining a substituted basis requires following the rules in the regulations as to how the basis of the property distributed is determined (IRC 732(c)(2) and 732(c)(3)):
  • First you will need to adjust your tax basis for the applicable items on the final K-1
  • Next you will reduce your tax basis by the amount of cash received in the liquidating distribution
  • Next you will need to review the basis of the property being distributed and compare it to the remaining tax basis determined after sub bullet two; just discussed.
  • If there is a difference between the two values (tax basis and property basis), then this difference needs to be allocated amongst the property being distributed in accordance with the rules in the regulations.  
  • In general, based on the limited facts, you should not have any gain or loss, but the basis of the property being distributed may not be the same as it is at the LLC level.
• At this point, I would just recommend you take care of the administrative issues to document the LLC is being terminated; mainly with the Secretary of State.
• Then meet with a tax professional who can provide assistance in determining your substituted tax basis post liquidating distribution.