Partnership Closing

[Terry D EA]

 An LLC was formed as a partnership. One of the partner's terminated their interest before the end of 2020. TY 2020 form 1065 was filed as the initial return. The partner's shared 20K loss. What I have seen in the partner's K-1, the basis of the departing partner was reduced by the loss and there is no gain on the return of any remaining basis or capital accounts. Please be kind here I am still gathering information. I don't know how you file an initial and final return in the same year. What I do know for sure is the partnership ceased to exist prior to the end of TY 2020. For TY 2021, am I correct the business is now a disregarded entity and is filed on Sch C with the remaining partner's 1040. 

BTW- This is a simple partnership, no employees, no assets other than cash as far as I can tell. Only depreciation was amortization of some startup expenses. There will be another partner added, so I assume it is ok to keep the EIN and reopen the partnership when one indeed exists. I am going to tell this client to not do this on his own. 

[Lion EA]

You file a final short-year 2020 partnership return, ending the last day of the partnership. Check the Initial and Final return boxes on Form 1065, and check the Final boxes on Forms K-1. Then the remaining no-longer-partner has a Schedule C for the remainder of 2020 and future years, as long as they remain a SMLLC or sole proprietor. Are you preparing the partnership returns for 2020? Or is one of the former partners your client for 2020 and 2021?

[Terry D EA]

Just to add, because the partnership ceased to exist prior to the end of TY 2020, should a short return have been filed? If so, should the original filing for 2020 be amended?

 

[Terry D EA]

Lion, you were reding my mind on the short year. New client for me, an accountant in NY prepared the 1065 and apparently wasn't aware the partnership had ended. I will be filing the remaining no longer partner's personal return with a Sch C as a disregarded entity. Just need to know if it is necessary to amend the 2020 1065 for a short year. I will find out from the client when the other partner left.

 

[Lion EA]

4 minutes ago, Lion EA said:

You file a final short-year 2020 partnership return, ending the last day of the partnership. Check the Initial and Final return boxes on Form 1065, and check the Final boxes on Forms K-1. Then the remaining no-longer-partner has a Schedule C for the remainder of 2020 and future years, as long as they remain a SMLLC or sole proprietor. Are you preparing the partnership returns for 2020? Or is one of the former partners your client for 2020 and 2021?

 

[Terry D EA]

Thanks, Lion, I got it. Form 1065 for TY 2020 has already been filed by another accountant as I stated. So, should the return be amended to reflect the short year and closing of the partnership?

[Terry D EA]

Update, client just confirmed they have the proper documentation and agreed to enter the partnership effective 12/31/2020. He originally told me the other partner left before the end of the year which triggered all of my thought. Now it is easy.