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K1 - Partnership (LLC) converting to C Corp

I was (still am) an investor in my company (Bob, LLC) which is a Colorado Limited Liability Company (LLC).  However, effective 1/1/23 the company (Bob LLC) converted from a Colorado LLC into a Delaware Corporation. The conversion is intended to constitute a tax-free exchange under Section 351 of IRS code whereby Bob Investments LP is deemed to transfer all assets and liabilities of Bob to a new corporation in an exchange for stock of that corporation. 

 

Following the conversation, Bob Investments distributes the stock of Bob Inc. in a liquidating distribution to the Limited Partners and General Partners proportionally based on their ownership of Bob Investments.

 

Once partnership activities were wrapped up, Bob Investments merged with and into Bob, Inc. and Bob Investments ceased to exist as a separate entity.  This happened at the end of July, 2023.

 

The conversion is intended to be a tax free transaction for US Income Tax purposes.  Assuming the conversion qualifies as a Section 351 transaction and the distribution of stock is treated as part of a liquidating distribution of a partnership, investors will not recognize gain or loss for US income tax purposes.

 

I received a K1 covering the period of 1/1/23 through 7/31/23 (the date of the merger into Bob Inc.).  It reports 1) allocated 2023 expenses; 2) 2022 tax distirbutions paid in 2023 (if any); 3) 1/1/23 distribution of stock and 4) final capital account balance information (which is $0).

 

I am sure that I need to answer the question in Turbo Tax that the “Partnership Ended in 2023”.  But then it is unclear to me how to answer the following question and the questions that come after it about the disposal and the Learn More text is not helpful.

 

No Entry – don’t know what this means

Complete Disposition – maybe, I don’t have any more position in Bob Investments but I am a shareholder in Bob Inc.

Disposition was not via a sale – that is accurate I guess…nothing was sold, rather was given interest in Bob Inc.

Sold and am receiving payment – no I did not sell and I did not receive any cash/funds.

 

Any advice that this community can provide would be appreciated 😊

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1 Best answer

Accepted Solutions
DaveF1006
Employee Tax Expert

K1 - Partnership (LLC) converting to C Corp

Yes, based on the information you just shared, Disposition was not via a sale should be the choice made. The only other choice would be a Complete Disposition but one would have to assume you received money from this, which is not the case. 

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1 Reply
DaveF1006
Employee Tax Expert

K1 - Partnership (LLC) converting to C Corp

Yes, based on the information you just shared, Disposition was not via a sale should be the choice made. The only other choice would be a Complete Disposition but one would have to assume you received money from this, which is not the case. 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
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