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Dan341
Level 2

Convert Partnership LLC to Single Member LLC (disregarded entity)

07-11-21 Inquiry

What is required to file an amended 2019 Form 1065 to remove my spouse as a member, leaving me as the sole remaining member?

 

1) I filed a 1065 extension for 2020 and have not filed 2020 taxes, yet.

2) I have satisfied State requirements for a single member LLC.

3) I had not previously changed status pending our now completed Marital Settlement Agreement.

4) Should I file a Form 8832?

1 Best answer

Accepted Solutions
Rick19744
Level 11

Convert Partnership LLC to Single Member LLC (disregarded entity)

The response helps, but still difficult in a forum such as this, but here goes:

  • Take a look at the link provided by @tagteam for what happens when you go from a multi-member LLC to a single member LLC (disregarded entity).  You are situation 1 in that revenue procedure.  Don't get hung up on the semantics of "selling" as effectively that is what is happening in a divorce / separation.
  • Honestly I would not recommend amending the 2019 form 1065 JUST to change it to a final return.  Given that we are now in July of 2021, I just think there is too much time in between and only opens the door for IRS scrutiny.  See bullet 4.
  • Given that this appears to be a small entity and the spouse only has 5%, I would strongly recommend that you just make the 2020 form 1065 as the final return; clean, minimal K-1 activity to the spouse and you are now done.  
  • There are most likely forms that need to be completed for the state of Florida Secretary of State.  Attempting to say 2019 is final could also be problematic for the state.  Don't forget this step in the termination of the LLC.  Do this step first to see how Florida reacts to the termination effective 12/31/2020.  This will dictate whether 2020 can be the final partnership return for Florida.
*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

5 Replies
tagteam
Level 15

Convert Partnership LLC to Single Member LLC (disregarded entity)

Read the recommended answer in the following thread:

 

https://ttlc.intuit.com/community/business-taxes/discussion/re-purchased-partner-s-50-ownership-of-a...

 

I will page @Rick19744 for your scenario.

Rick19744
Level 11

Convert Partnership LLC to Single Member LLC (disregarded entity)

Let's get some additional facts:

  • Why are you needing to amend the 2019 form 1065?
  • How did you file your 1040 in 2019?  Joint?  Are you planning on amending that as well?
  • I understand there is a separation or divorce going on, but how big of an issue is the LLC to the property split?
  • When is the marital settlement agreement to be effective?
  • Is the other party receiving anything for their portion of the LLC ownership?
  • What is your state of residence?
*A reminder that posts in a forum such as this do not constitute tax advice.*
Dan341
Level 2

Convert Partnership LLC to Single Member LLC (disregarded entity)

Thank you for your questions.

The spouse, in the marital settlement agreement, is giving up any claim on the business.  She was not active in it.

I want all assets and owners equity transferred into the disregarded entity.  Assets are small, ~$1,000 and owners equity is small, too $2,000.

I want to amend the 2019 1065 to notify the IRS that it is the final partnership filing 95% me / 5% spouse.

The 2019 1040 was Married filing Separately.

The MSA should become effective any day now.  It was filed with the court on July 1 and the judge typically signs off within 3 weeks.  There should be nothing controversial.

State of Residence is Florida.

Rick19744
Level 11

Convert Partnership LLC to Single Member LLC (disregarded entity)

The response helps, but still difficult in a forum such as this, but here goes:

  • Take a look at the link provided by @tagteam for what happens when you go from a multi-member LLC to a single member LLC (disregarded entity).  You are situation 1 in that revenue procedure.  Don't get hung up on the semantics of "selling" as effectively that is what is happening in a divorce / separation.
  • Honestly I would not recommend amending the 2019 form 1065 JUST to change it to a final return.  Given that we are now in July of 2021, I just think there is too much time in between and only opens the door for IRS scrutiny.  See bullet 4.
  • Given that this appears to be a small entity and the spouse only has 5%, I would strongly recommend that you just make the 2020 form 1065 as the final return; clean, minimal K-1 activity to the spouse and you are now done.  
  • There are most likely forms that need to be completed for the state of Florida Secretary of State.  Attempting to say 2019 is final could also be problematic for the state.  Don't forget this step in the termination of the LLC.  Do this step first to see how Florida reacts to the termination effective 12/31/2020.  This will dictate whether 2020 can be the final partnership return for Florida.
*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

Dan341
Level 2

Convert Partnership LLC to Single Member LLC (disregarded entity)

Thanks to both of you.  You understood my situation, my objective and offered a well-thought-out solution.  

 

I will proceed on your recommendation Rick 19744, run it through Turbotax and review it with a local tax professional before finalizing it.  I tend to get the best results if I have run an unusual scenario myself, even if it is wrong, before discussing it with a tax professional.  Yes, there are requirements to align the Articles of Incorporation and the Operating Agreement with the new status.  This has been done.  I just need to be sure that everything is square with the IRS.

 

Thank you, again.

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