Splitting a K-1 (entity type change)

[ILLMAS]

ABC Inc is a 80% member of XYZ LLC, in September 2021 ABC Inc became an LLC (granted by the IRS, same FEIN, still 80% member of XYZ etc…), so now two K-1 have to be issued one for  ABC Inc and another to ABC LLC for the respective months.  
 

ABC Inc will file a final  1120S for the first 9 months 

ABC LLC will file an initial 1065 for last 3 months

How does one go about splitting the K-1’s?

Thanks

 

[Bart]

You do a closing of the books on date of ownership change or you prorate the whole year by number of days owned.

[ILLMAS]

We have no problem at the 1120S and 1065 level for ABC, the books are separate already.  
 

The issue is at XYZ level:

The goal is do the following 

ABC Inc will get a k-1 for 9 months 

ABC LLC will reflect 3 months 

Right now  XYZ K-1 to ABC is for the whole year and here is where I need help splitting the k-1s to 9/12 Inc and 3/12 LLC.

 

thanks

[jklcpa]

Are you preparing the returns for the two ABC entities also?

Do you know how the transaction for the change of ABC entity was structured?  Statutory conversion, statutory merger, or nonstatutory merger? 

From the original post, it sounds like a streamlined process by filing a few forms and that the state allows an S corp to simply convert to an LLC, not that a separate LLC was formed and merged with the S corp.  If a simple conversion, I would:

1. make the software split the activity with 9 mos going to the S corp, whatever remaining capital at the 9 mos mark is zeroed out, and K-1 is marked as "final". No liquidation, and no gain or loss reported
2. K-1 for ABC, LLC will show an opening capital balance equal to whatever was zeroed out from ABC, Inc in step #1 above, and the remaining 3 months of activity will be reported on that K-1 to the new ABC, LLC.

At least that's what I would do with it if a conversion.

If ABC had a merger transaction to go from S to LLC partnership, that's another issue altogether.

~~~~

Or, were you simply asking how to make your software do all of that?

 

[Bart]

I was talking about XYZ doing the closing of the books or proration based on days of ownership not ABC.  ABC Inc and ABC LLC will get their own K-1 with their share of profit and loss.  Who of the three entities do you prepare taxes?