Inventory from 1065 to Sch C

[RitaB]

Husband and wife partners in LLC had no sales in 2009 and want to file final 1065. I think that's a fine idea, since TN is killing them with the franchise tax on their inventory. And there is no liability protection, IMO, cause they intermingle business and personal regularly, despite my pleadings. It's one of those deals where they set up an LLC without getting any advice. You know: Worst. Idea. Ever. (Pause) Let's do it!


How do I get rid of that inventory on 1065 and transfer it to husband's Sch C?

[BOB W]

Husband and wife partners in LLC had no sales in 2009 and want to file final 1065. I think that's a fine idea, since TN is killing them with the franchise tax on their inventory. And there is no liability protection, IMO, cause they intermingle business and personal regularly, despite my pleadings. It's one of those deals where they set up an LLC without getting any advice. You know: Worst. Idea. Ever. (Pause) Let's do it!


How do I get rid of that inventory on 1065 and transfer it to husband's Sch C?

Sell it at cost........................to Hubby's Schedule C

[RitaB]

5 minute party, Bob

Sell it at cost........................to Hubby's Schedule C

That's all I could think to do, but figured it couldn't be right since nothing REALLY got sold or purchased.

I was actually in the ball park, and didn't know it. Hmm. Thanks, Bob!

I bet that's a good way to get hit in the head with baseballs, too.

[Roland Slugg]

Just liquidate ...

... the partnership/LLC and pick up the ending inventory on H's Schedule C as his opening inventory. No need to sell it at cost.

[RitaB]

Thank you, Roland

... the partnership/LLC and pick up the ending inventory on H's Schedule C as his opening inventory. No need to sell it at cost.

OK, what you are saying makes total sense, and explains why my little voice was saying, "There must be more to this."

So, distribute the property on Sch M-2. Change beginning inventory to zero, and attach a statement explaining why. Am I still in the ball park?

And, why do we sing "Take Me Out to the Ball Game" when we are already there?

[JON]

Partnerships are easy

you record it as a distribution to the partners and it is done. There is no taxation on distributions to partners, as long as no "hot assets". You then use 351 election to put it in a corporationitax - free.

[RitaB]

I got that part

you record it as a distribution to the partners and it is done. There is no taxation on distributions to partners, as long as no "hot assets". You then use 351 election to put it in a corporationitax - free.

I got the part about recording it as a distribution, Jon. I also understand that it is not a taxable event.

I am asking about the actual typing, I guess. I get the forest part, just not the trees. I am wondering how to make the beginning inventory figure disappear on line Sch A, line 1. I mean, it IS there. And, IRS is going to have 16,000 more employees. One of them is going to notice if $700,000 becomes a zero, I fear.

Thank you, also, for replying.

[JG EA]

Couldn't you show beginning inventory as it was and ending inventory at zero after the distributions?
And maybe this quote will help. TTB 20-13

If a partner receives a distribution of unrealized receivables or
inventory, gain or loss on subsequent sale by the partner is ordinary
gain or loss. Exception: If the partner sells inventory items
held for more than fi ve years after the distribution, the type of
gain or loss depends on how the items are being used on the date
of sale. The gain or loss is capital gain or loss if the property is a
capital asset in the partner’s hands at the time sold.
Example: Sandra receives, through dissolution of her partnership, inventory
that has a basis of $19,000. Within fi ve years, she sells the
inventory for $24,000. The $5,000 gain is taxed as ordinary income. If
Sandra had held the inventory for more than fi ve years, her gain would
have been capital gain, provided the inventory was a capital asset.

[RitaB]

Hi, JG

Couldn't you show beginning inventory as it was and ending inventory at zero after the distributions?
And maybe this quote will help. TTB 20-13

If I leave beginning inventory at $700,000 and ending inventory at $0, they have a loss of $700,000. The net income needs to be zero.

But, your quote is most helpful, because thinking ahead, if these people ever sell this stuff, I've been wondering if it would eventually get capital gain treatment.

[outwest]

The income statement is not the only place

for a debit to go. Credit inventory, debit partner distributions (a equity account) .

On the schedule C, Debit inventory, credit owner contributions. (a equity account)

When sold on the schedule C, income or loss will be calculated.

[Sue C]

Use Line 2 of Schedule A on the 1065 - "Purchases less cost of items removed for personal use". The inventory was removed and given to the partner for his "personal use", which it this case was contributing it to the Schedule C entity.

[RitaB]

Got it

Use Line 2 of Schedule A on the 1065 - "Purchases less cost of items removed for personal use". The inventory was removed and given to the partner for his "personal use", which it this case was contributing it to the Schedule C entity.

Perfect. Thanks, Sue.