There are a number of issues here and I will address them in a general manner. Depending on the $$ involved, you may want to consult with a tax professional.
- The partnership terminated once it went from a two member LLC to a one member LLC. As such, the LLC will need to file a return through the date of the buyout. The tax return and K-1's should all reflect "final".
- Depending on what was "redeemed" by the partnership, there could be issues related to what is known as "step-up". This will occur when the FMV of the asset purchased is different than the adjusted basis of the partnership asset.
- The IRS has a revenue ruling that describes what happens when a partnership becomes a single member LLC. That ruling is here http://www.unclefed.com/Tax-Bulls/1999/rr99-06.pdf
- While the ruling is not exactly on point with your facts, you should follow situation 1. This means that you will have a bifurcated basis in the assets as a result of the redemption of the one member. This can be messy depending on the number of assets involved.
- For the period post redemption (buyout), the activity in this period will be reflected on your personal tax return Schedule C.
- When a member sells their interest in an LLC treated as a partnership, it is as if they sold their respective share of each of the underlying assets. This gets complicated as some of the underlying assets could be what is known as "hot assets" (depreciation recapture as an example). As a result of this, the selling member needs to know their share of depreciation recapture in the assets held. When this member determines their overall gain, which in general is capital gain, some of this capital gain will be reclassified as ordinary income and possibly generating a capital loss. The overall gain will not change, just the classification.
As you can see, there are a number of issues and complexities with this type of transaction, which as noted above, may require consulting with a tax professional.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.