Business & farm

Here are some comments:

• Partnership tax can become complicated very quickly; regardless of the size of the entity
• The 8 of you formed an LLC.  The contribution of each member to the LLC is the beginning point for your tax basis in the LLC.  This is one critical factor.
• The LLC then made a contribution to the "private entity".  This is the beginning point for the tax basis of the LLC in the private entity.
• Each subsequent year, your LLC and each of the 8 of you received K-1's.  The LLC and each of the 8 members needed to adjust their tax basis for the applicable lines of the K-1.
• In the final year, you need to update the LLC tax basis for the final K-1 amounts, EXCLUDING any final (liquidating) distribution.
  • The LLC then needs to determine the overall gain or loss on liquidation.
  • The final (liquidating) distribution is the "sales" price and the tax basis is the cost basis.
  • This step, from your facts, is accomplished by the accountant.
  • Technically, there should not be any "distribution" reflected on the final K-1 to the 8 LLC members.  This is because liquidating distributions should be reported on a form 1099-DIV and not the K-1.  This is not always done correctly by practitioners.
• So at this point, the LLC issued final K-1's to the 8 members.
• Each member should have been maintaining their tax basis in the LLC as explained above.
• At this point, each member needs to update their tax basis for the applicable lines on their respective K-1.
• Just as noted above, if the liquidating distribution is reported on the K-1, do not include this in determining your final tax basis.
• The final (liquidating) distribution will be the "sales" price and your tax basis will be your cost basis.  TT will ask questions when you indicate that this is the final K-1.