You would think that a small business only has small tax problems, but unfortunately, regardless of the size, the tax implications are just as difficult.
You have a number of issues to address and I would agree that meeting with a tax professional would be a wise decision. However, based on your comments, which albeit sparse, I am not sure that who you met with gave you adequate advice.
Some comments:
- It seems very odd that based on your facts you are an LLP. These are typically professional firms that are attempting to limit liability to specific partners based on a specific instance(s).
- Becoming an LLP or LLC is something that needs to be handled with the Secretary of State office of your state. Not all states allow an LLP to convert to an LLC. You will need to call your Secretary of State to determine if a conversion is allowed under state law.
- Regardless of whether a conversion is allowed, there are many tax consequences that need to be addressed with your father retiring; liquidating distribution (is this a proportionate liquidating distribution), impact on basis of assets, etc. While the numbers may not be large, you still need to get to the right result.
- If you are not allowed to convert to an LLC under state law, then you will have a liquidating distribution for both partners. You would then need to register and form a new business entity under state law.
- Get professional advice on whether it makes sense to form an LLC and elect S corporation status. This is done in some instances where the business "formalities" are much easier as an LLC for state law purposes. As noted, even though you form an LLC under state law, if you elect S corporation status, you are an S corporation for federal and state income tax purposes only.
- As you can see, there are many issues and limited facts. This forum can only provide you with some general direction.
*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.
