4 Member LLC redeemed down to 2

[gocontracting]

Our LLC agreed to redeemed out 2 members on of 9/30 at the value in their capital accounts as of 9/30/2024. Their capital balance was paid in two installments, one in 2024 and one in 2025. So at the end of 2024, they still had basis in the partnership. Their ownership went from 25% (each) to 0%; while remaining members went from 25% to 50%. 

Given we are cash basis accounting; I don't believe I can mark their 2024 K-1 as final. They are technically still members of the LLC with 0% interest until 2025 when the final payment is made. 

Two points I would like some feedback on:

1 - Turbotax calculates a weighted average P&L allocation; I will have to manually override the K-1 balances in order to match my manual calculation (Jan-Sept P&L pro-rata to all memebers; but only Q4 P&L to remaining members)

2 - I need to note as members interest as a 'sale' occuring in 2024, but override and not mark their K-1 as final until they receive final payment

[RobertB4444]

1 - The weighted average should be correct as long as you entered the correct date of the transfer of interest. 

2 - If the partner's interest is reduced to zero then the K1 is final.  The final payment for the sale can still be paid after the partner is removed from the partnership.

@gocontracting 

[gocontracting]

Thanks Robert. A couple of points/clarifications. 

1 - the WA used by turbotax is assuming an even split of P&L througout the year. The redemption amount and timing was based on figures as of 9/30. In Q4 the company experienced a loss, lowering total net income. Therefore the WA calculation is in appropriately allocating Q4 losses to the partners which would mean the buyout amount was greater than their capital balance - instead of netting to zero.  Seems this is a limitation of TT to not enter in the income as-of the sales date to account for this. 

2 - the company has not made the final payment to partners. The agreed upon redemption amount WILL bring capital account to zero; but not until 2025 when the final installment payment was made. As of 10/1/2024 they are no longer partners or receiving P&L allocation; however, at 12/31/24 they still have a balance in their capital account. 

[RobertB4444]

1 - Technically they own a portion of all of the activity for the year.  But if you want to make certain that none of the quarter 4 activity effects the two partners you can make manual adjustments to all four partners' K1s to get everything lined up.

2 - You will not need to issue a K1 to former partners in order to show the change in their capital accounts.  They will need to indicate the balance that was in the capital accounts on the schedule Ds of their personal returns in both years.

@gocontracting