UPDATE: Interest income received by LLC 2 years after "final return" was filed due to sale of biz

[mmarc2000]

I sold my business (owned in an LLC) in 2019 and filed a final Form 1065 in 2020 (note, I still have the LLC, only the biz was sold).   In 2022 the LLC unexpectedly received an IRS refund (refund of a previously paid filing penalty) including taxable interest income.  I assume I need to now file a Form 1065 for 2022 (and a state filing) which would only report the interest income, and distribute K-1s to the partners.  Is this accurate?  Since my 2019 return was marked as a "Final Return" will I have any issues with the IRS filing a 2022 return?  Thanks!

[Anonymous_]

I am going to page @Rick19744 for this.

The scenario should not really be problematic except for the fact that 1065s were due back in March (unless an extension was filed, which it almost certainly was not). As a result, a penalty may be imposed unless an explanation is provided with the return.

[mmarc2000]

i just received the refund check 2 weeks ago so I assume this is a 2022 event with the tax return due in 2023, correct?

[Anonymous_]

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@mmarc2000 wrote:

i just received the refund check 2 weeks ago so I assume this is a 2022 event with the tax return due in 2023, correct?

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Yes, that is correct if you received the check this tax year.

[Rick19744 · Accepted solution]

A few comments:

• Curious and interesting that you indicate you still have the LLC, yet you filed a final return.
  • Are there plans to use the LLC for another venture?
  • Have you been filing any required secretary of state filings; if any?  A number of states require an annual filing that is completely separate from any income tax filings.
• How many members were there in the LLC?
• Without knowing the responses to the above questions, I am going to just provide my thoughts.
• As noted above, not sure why the LLC was not formally closed with the state.
  • There does not appear to be any active / ongoing business in the LLC.  As such, you should close this out with the respective state.
  • If you decide to begin another business, I would recommend starting a new LLC (or what ever entity structure is appropriate) along with a new operating agreement.
• Since you filed a final return for the LLC, I believe filing another return would most likely cause confusion with the IRS.
  • The IRS will most likely want to know why no 2021 return if you begin filing again
  • The IRS system, hopefully, has noted that the LLC has filed a final tax return.  If you now file another, who knows what confusion this will bring.
• I think it would be easiest to allocate the interest to the members in proportion to their LLC interest.  Just advise them of their portion via some type of documentation.
  • If you get a notice from the IRS just reply with the facts
  • Filed a final LLC tax return as was required
  • No further operations in the LLC
  • Unexpectedly received the refund along with interest income; two years later
  • Did not want to cause confusion with the IRS since a final return had been previously filed
  • Notified the respective members of their portion of the interest income and each reported their share on their respective 1040
  • I would include the name, SS# and the respective share of interest for each member in the response letter.
  • Any reply should be sent certified mail return receipt requested

[mmarc2000]

Thank you, Rick19744, that was exactly what I needed.  I thought there might be some issue if I tried to file a 2022 return after a final return had been filed.  There is only one member other than me so this will be straightforward.  I appreciate your insights.  

[Rick19744]

You are welcome.