partnership

[TAXMAN]

Have tp(age 54) and dad(age75) formed a partnership years ago. Dad cannot work anymore and has deceided to turn over business(his share) to son for $1.00. Virtually no assets in busines but a lot of debt that son had previously signed a guaranteer of note. Money was used as operating capital. Any way Son wants to continue as an LLC.

First question: Can son keep old employer ID # or does he need to get new one?

Second question: Would dad have a capital transaction occur as a result of closing partnership? His capital account is about $3000.00 as they pulled out all money as they went along.Dad is not on any of the loans and dad also filed bankruptcy this year and has been discharged of all debts.

What would be a clean way to close this partnership and allow son to keep business going?

ANY THOUGHTS ON THE MATTER

Many thanks

[jasdlm]

Okay . . . I'll give it a stab.

1) I assume the debt is in the name of the LLC? (i.e. not just loans that son took and then loaned proceeds to the LLC himself) If this is the case, then if father sells or abandons his interest, it seems that he would have income to the extent he is released from liability on the LLC's debts less his $3,000 basis.

2) Assuming they are equal partners, doesn't this result in a technical termination of the LLC? (sale of 50% more of capital and profits interest within a 12 month period) If so, LLC contributes all of its assets and liabilities to a new LLC in exchange for an interest in the new LLC and the terminated LLC distributes interest in the new LLC to the purchasing member and the other remaining members in proportion to their interests in the terminated LLC . . . I don't think a technical termination of this nature requires a new Tax ID.

3) Fresh start approach with regard to any carryover basis of assets transferred from the terminated entity. . . I think you mean from your post that there aren't any depreciable assets, so probably not relevant.

4) Basis adjustment for son if he is assuming an increased % of liabilities?

This is my best analysis; I might be off base, but hopefully it will get the thread started.

[mcb39]

I think that if son wants to continue as a Sole Proprietor LLC; and the Partnership with the father is dissolved because of the over 50% disposal; he DOES need a new EIN. If Dad is just going to ride off into the sunset and has already filed bankruptcy; I can't see any taxable transaction here. There are no fixed assets involved. Of course a final Partnership return has to be filed and the profit or loss allocated to each of the Partners. From there on, the son goes forward as a disregarded entity LLC, and files a Sch C. There is no indication, however, of what the proportionate shares of Partnership interest are and who they are allocated to. All assumptions are based on this being a 50/50 Partnership with both partners active. There could be many different scenarios.