topic Changed from a C corp to LLC multi member in Business & farm

Changed from a C corp to LLC multi member

mhautomation — Wed, 31 Mar 2021 20:35:00 GMT

Hi Last year Jan we switched from a C corp to a multi member LLC. How do I convey that to Turbo tax?

They imported 2019 corp info.

Please advise

Re: Changed from a C corp to LLC multi member

Mike9241 — Wed, 31 Mar 2021 20:58:32 GMT

you did NOT CONVERT a C-corp to a multimember LLC in 2020 (a partnership/or S-Corp ). You liquidated the C-Corp and used its assets to form the LLC. you should file 2 returns one for the C corp as final and one for the LLC - 1065 or 1120S. There can be significant tax consequences of liquidating the C-corp. there are tax issues if the net worth of the LLC was negative when the assets/liabilities from the C corp were contributed to the LLC.

that's why Turbotax may be starting out with a C Corp return. if you did not do things properly in 2020 see a tax pro. things may need to be corrected.

there is always the possibility that nothing changes (unlikely) but if you are not filing 2 returns for 2020 you may be doing something wrong. the rare exception would be conversion 1 second after midnight on 12/31/2019 but then the 2019 C corp should have been marked final. it should have been liquidated on12/31 and the tax consequences of the liquidation should have been reported on the stockholders' returns if the C-corp conducted activity in 2020 including liquidating it needs to file its 2020 own return

Re: Changed from a C corp to LLC multi member

Rick19744 — Wed, 31 Mar 2021 21:42:28 GMT

I agree with @Mike9241 in that you have a number of tax issues that need to be addressed:

As noted, you needed to liquidate the C corporation.
As also noted, you may need two separate returns depending on the timing of the C corporation liquidation.
When liquidating a C corporation, any assets distributed in the liquidation will be deemed sold at FMV and any gain recognized by the C corporation; note there could be ordinary income recapture as a result of any prior depreciation taken on the assets.
Form 1099-DIV needs to be filed for each shareholder receiving liquidating distributions.
There are rules that need to be addressed if there is debt associated with any property distributions.
Technically a form 966 should have been filed, but not fatal.
The shareholder's will also need to determine the tax implications of the liquidation at the individual level.
Shareholder's are required to attach a statement to their individual tax return in accordance with regulation section 1.331-1(d).
You will then contribute the property to the newly formed LLC.
All property contributed will begin with new depreciable lives.
Since the LLC is newly formed, the beginning balance sheet will be blank.

You may want to consider consulting with a tax professional to make sure that the liquidation is handled appropriately and then the LLC starts out correctly.