Personal 1040 question on K-1

[RB287a]

Got a question on our Personal Form 1040 this year. It concerns one aspect of how Turbo Tax is treating my Schedule K-1 from an LLC that I was a member of in 2024 but the LLC closed out that year. Said LLC held a Loan Note only and that's all. No assets, interests or equipment to sell or liquidate.

Here is how I filled out the T.Tax Questionnaire in step by step topic.
Describe the Partnership:   I checked  [x] This Partnership Ended in 2024

How you disposed of this partnership:  I checked  [x] No Entry <-(the LLC never had no assets or interest)

What type of activity was/is this partnership:  I checked  [x]  Other

Look over K-1 and check boxes that have amts in them:   I checked  [x] Boxes 4 to 7,  [x] Box 14,  [x] Box 20

Fill in amts from boxes that apply to your K-1 situation:  I filled in  [0] in all Boxes EXCEPT Box 20, I put $488

Enter Box 14 Info:  I picked-> A-Net Earnings (Loss) Self Employment with the amt of (-104)

Enter Box 20 Info:  I picked-> A-Investment Income with the amt of (488)

Check any that apply to your investment in this LLC:   I left ALL of them Unchecked since None applied.

When asked if LLC agreement require me to pay expenses out my pocket:  I clicked NO
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So I finish the rest of the Step by Step questions on our Personal 1040 and run the Review and Error check and everything looks good. 

But feeling a bit unsure about the vague content of the LLC questions I went to View Forms and looked at listed K-1 Partner (Our LLC) at Section Labeled FINAL/AMENDED

It shows the below:
[ ] Final K-1
[x] Partnership was discontinued during 2024
[ ] Partner sold or otherwise disposed of entire interest in 2024
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So I wonder why the Final K-1 was not checked?  This is the Final K-1 from the LLC? 

So then while on the Form I check  [x]  Final K-1.  

I Save the Return and then run Review and Error check again and this time it baulks wanting me to go fill in several other worksheet lines about when and what were disposed from the LLC.

Well these simply just do not apply so I go back to View Forms and Uncheck the   [ ] Final K-1

I then run the Error check again and it now comes out Good.

My question is why isn't the [ ] Final K-1 being checked?
This was the last year of the LLC and when I did the Form 1065 last week in T.Tax Business I answered Yes when asked if the was the Final K-1.

[RB287a]

Found my answer on this thread https://ttlc.intuit.com/community/business-taxes/discussion/if-your-schedule-k-1-is-marked-final-at-...

Thanks to replies by there by pixiedent and DaveF1006 which gave input to my scenario also. Everything seems to hinge on how to describe our LLC disposal. The LLC simply held a Mortgage Note loaned. It had no Capital Assets or Equipment etc at any time. Only collected Mortgage Pmts, the Interest was taxable, Principal loaned not taxable. Our personal 1040s were taxed on interest income each yr. So when Mortgage paid in full was the Final K-1.
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On my 1st run through the Business Investment->Schedule K-1 Questions on (Described the Partnership)
I chose->This partnership ended in 2024. Ok so far.
But on the next question (Describe Partnership Disposal)
I chose->No Entry since there was nothing to dispose off.

At end of questions the Review and Error Check all were good.  But when I viewed the Forms the K-1 did NOT have Final K-1 checked at Section Label FINAL/AMENDED
[ ] Final K-1
[x] Partnership was discontinued during 2024
[ ] Partner sold or otherwise disposed of entire interest in 2024
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And if I tried to check the Final K-1 on the actual Form it started asking other questions that did not apply.
So went back thru the Questions again, at (Describe Partnership Disposal)
I chose->Disposition was not via a sale.
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And at the question (Enter Sale Dates) I left both boxes Purchase and Sale Date [ ] EMPTY since nothing was purchased or sold.
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Ran Review and Error Check all were good. View Forms then had Final K-1 checked at Section Label FINAL/AMENDED
[x] Final K-1
[x] Partnership was discontinued during 2024
[ ] Partner sold or otherwise disposed of entire interest in 2024
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I also ran it thru one more time and put a Purchase date in for the start of the Mortgage. I left the Sale Date Empty as before. I got the exact same results
[x] Final K-1
[x] Partnership was discontinued during 2024
[ ] Partner sold or otherwise disposed of entire interest in 2024
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So I went back and left the Purchase date EMPTY since it just didn't seem to apply in my scenario. I going to go with that.
But always appreciate any comments on input on these findings.

[RobertB4444]

That is fine.  You can also enter it as a sale for zero dollars on the final date of the partnership.

@RB287a 

[RB287a]

Thanks for the reply RobertB

BTW just as a warning to anyone that isn't aware of this facet of dissolving a Partnership (or LLC). A CPA some time back told me this and it amazed me. I really don't understand why the IRS requires this. Especially for Partnerships and LLCs since all that income is passed through to each member and that tax isn't due until the following year's 1040s are filed.
But since they do require it why they don't stress more obvious in their instructions about the expensive fines accruing monthly if you don't comply. Here's the thing.
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* Partners (or Members) need to think carefully about when they really need to dissolve a Partnership or LLC. And if they don't have to dissolve sooner then they should put the XXXX, ending date (at top of Form 1065) as Year ending Dec 30, XXXX. This is because the IRS requires the partnership (or LLC) to file a final 1065 return based on date of dissolution. That means the partnership’s tax year ends on its date of termination, and it must file its final 1065 return by the 15th day of third month after that date. NOT the standard March 15 as a normal calendar yr 1065 due date.
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Say if they put on June 13, XXXX ending date (at top of Form 1065 or any date prior to Dec 30, XXXX) then the IRS requires the partnership's 1065 filed by the 15th day of third month after that date.
And if they fail to file by the above said date then the fines are expensive for each member accruing each month. The CPA told me about partnerships that filed their own 1065 late and it cost them several thousands in late filing fees because not knowing about this requirement and penalties they put an early ending date on their (then late) Form 1065
I looked online at,
https://www.irs.gov/businesses/small-businesses-self-employed/closing-a-business
I pasted this right off their page
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You must file Form 1065, U.S. Return of Partnership Income, for the year you close your business.
When you file, you must:
Report capital gains and losses on Schedule D (Form 1065).
Check the “final return” box (it’s near the top of the front page of the return, below the name and address).
Check the “final K-1” box on Schedule K-1 PDF.
You may also need to file these other forms with your Form 1065:
Form 4797, Sales of Business Property, for each year your partnership sells or exchanges property used in the business. You also need to file this form if closing your business causes business use of an eligible property under Section 179 to drop to 50% or less.
Form 8594, Asset Acquisition Statement, if you sell your business.
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That's it, just says for the year you close. That's easy to misunderstand if all you've ever done is file the 1065 by March 15 the following year.
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I really had to search over several IRS links before I found this.
https://www.irs.gov/instructions/i1065#en_US_2024_publink11392vd0e711
Termination of the Partnership
A partnership terminates when all its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership.
The partnership’s tax year ends on the date of termination which is the date the partnership winds up its affairs. Special rules apply in the case of a merger, consolidation, or division of a partnership. See Regulations sections 1.708-1(c) and (d) for details. Also see IRS.gov/newsroom/questions-and-ans[product key removed]ical-terminations-internal-revenue-code-irc-sec-708.
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I saw nothing about the expensive monthly fines of hundreds per month or anything related to filing an extension for filing the 1065. NOR did it state the obvious solution of just keeping the LLC open until December 30. If for no other reason than just waiting till all the forms and software are available for the current tax year. Anyhow just seemed pretty incredulous to me.