joans Posted July 9, 2009 Report Share Posted July 9, 2009 This is a confusing one. Will try to explain as best I can:) Filed LLC with 3 partners in 2007. No problem there. In 2008 two parnters left, leaving sole owner. Now comes the confusing question. Working on 1065 for 2008. Thinking is should be 1120S instead because one owner. However, no change was made to change to 1120S ownership. I need help on how to handle this. If I file 1120S, is IRS going to question because no legal steps were taken by TP to change to 1120S or can I file a 1065 with one person:( Also, if changes to 1120S, is this going to change the Fed ID #. Very confusing, so if questions, please let me know. I am in a little bit over my head on this one. Thanks. Sara Quote Link to comment Share on other sites More sharing options...
joans Posted July 9, 2009 Author Report Share Posted July 9, 2009 Another question. Would filing a 2553 for the year 2008 and filing a 1120S with the same Federal ID and paperfiling this return be a remedy for this dilemma? Whatcha think anyone? Quote Link to comment Share on other sites More sharing options...
Maribeth Posted July 9, 2009 Report Share Posted July 9, 2009 This is a confusing one. Will try to explain as best I can:) Filed LLC with 3 partners in 2007. No problem there. In 2008 two parnters left, leaving sole owner. Now comes the confusing question. Working on 1065 for 2008. Thinking is should be 1120S instead because one owner. However, no change was made to change to 1120S ownership. I need help on how to handle this. If I file 1120S, is IRS going to question because no legal steps were taken by TP to change to 1120S or can I file a 1065 with one person:( Also, if changes to 1120S, is this going to change the Fed ID #. Very confusing, so if questions, please let me know. I am in a little bit over my head on this one. Thanks. Sara A single owner LLC is a disregarded entity and the activity will be shown on a Schedule C (or E) unless the election is made to report as an S Corporation. Are you sure that the two exiting partners did indeed leave the partnership. They may still own their individual shares even though they are not actively working in the partnership. You cannot file an 1065 with only one partner. Maribeth Quote Link to comment Share on other sites More sharing options...
joans Posted July 9, 2009 Author Report Share Posted July 9, 2009 The partners are no longer with the company. Problem with a schedule C, this is a gas station/Convenience store with sales of over 3M. Way to large for Sched C, I feel. I was thinking that way too, but I think a 1120S would make more sense with the volume of sales. Sara Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted July 9, 2009 Report Share Posted July 9, 2009 If you determine that, in fact, 2 partners left, the partnership has ended so a final 1065 would be in order. The remaining member of the LLC would need a new EIN <http://www.irs.gov/businesses/small/article/0,,id=98011,00.html> but, depending on the state, may not have to change anything at the state level where organized. Perhaps an amendment to the articles of organization would be in order, but an attorney should be consulted. I agree with Maribeth about the filing requirements and forms. Would the remaining member want to be incorporated? If so, as an S-corp? More questions than answers. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted July 9, 2009 Report Share Posted July 9, 2009 The partners are no longer with the company. Problem with a schedule C, this is a gas station/Convenience store with sales of over 3M. Way to large for Sched C, I feel. I was thinking that way too, but I think a 1120S would make more sense with the volume of sales. Sara If he bought out the partners during the year, you need to file a 'Final' 1065 for that portion of the year. Then, you need to decide if he wants to elect to be a sub S corp, and if so, you could file the remainder of the year as 1120S under the Late Election rules. But if he does not meet the requirements for that late election, then you will have to file it on a C for at least that portion of the year. There is no limit on the size of a Sch C business. I've seen at least one with over $10 million in sales. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted July 10, 2009 Report Share Posted July 10, 2009 Sara.......KC is correct. There is no limit on the income for a Sch C; Sole Proprietor LLC. If he wants to become an S Corp that is one option, however if he wants to stay on as an LLC....Schedule C is the answer. You will have to file a part year final return for the Partnership to close out that entity. Then he can go to C or S Corp and will need an new EIN if he has employees; which I assume he has. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted July 10, 2009 Report Share Posted July 10, 2009 http://www.taxschool.illinois.edu/products.html I recommend the book on LLC. It has very good examples, using complete financials, to show what should be happen and the reasons for what is happening. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted July 10, 2009 Report Share Posted July 10, 2009 there is no income limit for a sch c-agreed but high sch c's have the greatest risk of audit. have you client give 1% to wife, child, mom or dad, then its still a partnership Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted July 10, 2009 Report Share Posted July 10, 2009 Choice of entity is a very important decision for the owner. Taxes are important, but liability protection must also be taken into consideration. Agree that final 1065 should be filed if the partners left. Short year return for "new" entity. Owner should contact an attorney to get the state filings and articles in order. I would recommend a new EIN for the new entity if the old one has not been used. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
lbbwest Posted July 10, 2009 Report Share Posted July 10, 2009 This is a confusing one. Will try to explain as best I can:) Filed LLC with 3 partners in 2007. No problem there. In 2008 two parnters left, leaving sole owner. Now comes the confusing question. Working on 1065 for 2008. Thinking is should be 1120S instead because one owner. However, no change was made to change to 1120S ownership. I need help on how to handle this. If I file 1120S, is IRS going to question because no legal steps were taken by TP to change to 1120S or can I file a 1065 with one person:( Also, if changes to 1120S, is this going to change the Fed ID #. Very confusing, so if questions, please let me know. I am in a little bit over my head on this one. Thanks. Sara I was reading these postings and I think the advice is basically good but somewhat jumbled. There is a difference between you choosing an entity for the FUTURE and being stuck with what happened in 2008. #1 go to your partnership agreement, it will address what is or is not a dissolution. KC was of course correct you must file a 1065 for the period that there was a partnership entity. HOWEVER, just because a partners "leaves" it doesn't necessarily constitute a dissolution. This is the problem with all small businesses; they conduct themselves exactly how they want to; disregarding entity rules. Your posting has not convinced there WAS a dissolution. #2 If the partnership WAS dissolved, your buddy was a sole proprietor whether he wanted to be or not, for the balance of 2008. He did NOT file a change in entity; (an LLC declares type of entity upon registration), and as he did not file as another entity the business defaults to a sole prop. #3 Please note we are more than halfway through 2009 you should sit down with him and go through the options for 2009 and get this issue resolved for this filing year. Good Luck lbb Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted July 12, 2009 Report Share Posted July 12, 2009 IRC section 706©(2)(A) provides that the taxable year of a partnership shall close with respect to a partner whose entire interest in the partnership terminates. Additionally, IRC section 708((1)( provides that if there has been a sale or exchange of 50 percent or more of the total interest in partnership capital and profits within a 12-month period, the taxable year of the partnership closes. LLC / Partnership dissolution for IRS purposes differs from State Law. (Harbor Cove Marina Partners Partnership v. Comr., 123 T.C. 64 (2004)) Under IRC §708 termination for tax purposes will not occur until either no part of any business is being carried on by any of the partners or more than 50% of the interests in the partnership are sold within a 12-month period. (also when all but one partner withdraw, and for certain mergers of divisions) Under Regs §1.708-1((1) it is clarified that termination for tax purposes LLC / Partnership will not occur until all assets (even including any remaining cash) are distributed to the partners. Whereas, in the area of corporate taxation it is generally accepted that a corporation can be deemed to have completely liquidated even though it maintains its charter and a nominal amount of assets, provided it is not engaged in an ongoing business. The partnership rule is different; in addition to ceasing business, a partnership must continue to file tax returns as a going concern until it distributes all assets to the partners pursuant to the partnership agreement. Regs §1.708-1(a). Quote Link to comment Share on other sites More sharing options...
joans Posted July 14, 2009 Author Report Share Posted July 14, 2009 Thank you for all the replys, but you guys are going to hate me:( I guess client included his wife in the partnership. So this is all moot. But I do appreciate all the help. Now I will know how to advise a client if this situation does happen. Maybe this wasn't a bad thing. I sure learned how to handle this. Thank you again for all the advice and help. Sara Quote Link to comment Share on other sites More sharing options...
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