Partnership termination

[JON]

Two partners who had 40% of the partnership end up taking over 100% of the partnership. As part of the deal the two pay down part of a note and part of the note was forgiven. The note holder has agreed to send 1099s for the forgiveness of debt to each individual llc member.

This seems to terminate the partnership, more than 50%, when i talked to another preparer he says he believes temination of the partnership is getting the right K-1s out to the partners and uses the same ID numbers for the old and new partnership.

Does that work??? What is the correct way.

Thank you.

[Burke]

From what you say, it does not appear that the partnership terminated. Ownership changed when the 20% partners became 50% partners by buying out the other interest(s). EIN does not change, but you may have to do two partnership returns, one prior to change and one after, both being for the period of time in the calendar year in which the ownership was different. For example, if change occured eff. 8/1/09, one return would be for the period of time from 1/1/09 to 7/31/09, showing former partnership interest percentages and the appropriate K-1s. Then another return from 8/1/09 to 12/31/09 showing the new partnerships interests and the the appropriate K-1's. Partner(s) who sold out would only have a K-1 from the first period.

[S T]

Technical Termination

Isn't there a technical termination of a partnership when there is a sale or exchange of 50% or more of the total interest in the partnership capital and profits during a 12 month period.?

Partnerships
You will be required to obtain a new EIN if any of the following statements are true.

You incorporate.
Your partnership is taken over by one of the partners and is operated as a sole proprietorship.
You end an old partnership and begin a new one.

You will not be required to obtain a new EIN if any of the following statements are true.

The partnership declares bankruptcy.
The partnership name changes.
You change the location of the partnership or add other locations.
A new partnership is formed as a result of the termination of a partnership under IRC section 708(b)(1)(B).
50 percent or more of the ownership of the partnership (measured by interests in capital and profits) changes hands within a twelve-month period (terminated partnerships under Reg. 301.6109-1).

Sandy

[JON]

Thanks

I think you both pointed me to the right place. Sandy's advice says no new ID numbers, but you have two year ends. Does that not confuse the IRS. Can you not force the K-1s to reflect those amounts correctly, but not file 2 2010 returns? Am I strectching it here? Should I just do the old - take a 2009 1065 cross out all 2009 with 2010 for the short period 1/1/10 to 3/31/10 file it now and then do another 2010 return for the year end for the short year end 12/31/10 using the same IDs 2010 return.

[Davc]

Read Sandy's post again.

"Partnerships
You will be required to obtain a new EIN if any of the following statements are true.

50 percent or more of the ownership of the partnership (measured by interests in capital and profits) changes hands within a twelve-month period (terminated partnerships under Reg. 301.6109-1). "

[JON]

Here is Sandy

You will not be required to obtain a new EIN if any of the following statements are true.

The partnership declares bankruptcy.
The partnership name changes.
You change the location of the partnership or add other locations.
A new partnership is formed as a result of the termination of a partnership under IRC section 708(b)(1)(B).
50 percent or more of the ownership of the partnership (measured by interests in capital and profits) changes hands within a twelve-month period (terminated partnerships under Reg. 301.6109-1).

YOU WILL NOT BE BE REQUIRED IF ----

I hope I do not have the reading problem - OR DO I??????????????

[Davc]

You will not be required to obtain a new EIN if any of the following statements are true.

The partnership declares bankruptcy.
The partnership name changes.
You change the location of the partnership or add other locations.
A new partnership is formed as a result of the termination of a partnership under IRC section 708(b)(1)(B).
50 percent or more of the ownership of the partnership (measured by interests in capital and profits) changes hands within a twelve-month period (terminated partnerships under Reg. 301.6109-1).

YOU WILL NOT BE BE REQUIRED IF ----

I hope I do not have the reading problem - OR DO I??????????????

Nope. This time I do. However, I already have new glasses coming sometime within the next week.

[BHoffman]

Me too. And I'm filling them with rum punch when they get here

[Burke]

I think you both pointed me to the right place. Sandy's advice says no new ID numbers, but you have two year ends. Does that not confuse the IRS. Can you not force the K-1s to reflect those amounts correctly, but not file 2 2010 returns? Am I strectching it here? Should I just do the old - take a 2009 1065 cross out all 2009 with 2010 for the short period 1/1/10 to 3/31/10 file it now and then do another 2010 return for the year end for the short year end 12/31/10 using the same IDs 2010 return.

The IRS will not be confused if you do not mark the first one as final. But your partners may be if you try to do this on one return. If you can get your software to properly allocate the K-1's, go for it. I am not sure you won't have to override a lot. It's a lot simpler just to do two separate returns with the different interests. You can mark the terminating partner's K-1 as final.

[JON]

708 Termination

can be avoided IF THE REMAINING PARTNERS AGREE TO CONTINUE THE PARTNERSHIP... Yeah for me...

Thanks guys.