Closing a Partnership accounting and its books

[rkhan71]

Would appreciate help with regard to an LLC partnership that is closing as a partnership half year (short tax year), and the main partner is going back to an LLC sole prop. The partnership is terminating. So want to know the formalities of accounting and tax entries to close out the books and file the final return. I am a little weak in this accounting area - partnerships, so looking for help to close out the accounting. Also seeking comments on transferring any assets methods etc. to the sole prop - the proper recording and transferring etc.

Thanks as always for your help in advance.

rfk

[rkhan71]

I guess no takers...

this is a difficult subject, so presumption is that not all know about it very well.

Thanks for your help anyway. :}

rfk

[DaveinTexas]

Your question

Would appreciate help with regard to an LLC partnership that is closing as a partnership half year (short tax year), and the main partner is going back to an LLC sole prop. The partnership is terminating. So want to know the formalities of accounting and tax entries to close out the books and file the final return. I am a little weak in this accounting area - partnerships, so looking for help to close out the accounting. Also seeking comments on transferring any assets methods etc. to the sole prop - the proper recording and transferring etc.

Thanks as always for your help in advance.

rfk

Was viewed and not answered because this happens to be the most complicated portion of tax law (my opinion). To answer (take a guess) would be to show weakness in this difficult arena of tax law so that is why some may be silent. Perhaps if you provided some further details (assets, liabilities, partners basis prior to dissolution) some members may jump in and provide the correct process to deal with the accounting. As for the tax side of this final return, this question can't be answered without further information. I'm no expert but I might be able to scratch up some references to help.

[S T]

Doesn't the termination of an LLC electing partnership follow the same rules as a "regular" partnership?

Pub 541 has that process.

***Be careful about the termination date and short year of the partnership - as there is a tax return due in a specified period!*** 15th day of 4th month of actual termination - short period return - See the 1065 Instructions

TTB edition also has a great section on Partnerships and LLC

As Dave in Texas stated in his post - probably need some more information - it is really a challenging area!

Sandy

[rkhan71]

Dave in Texas or anyone else

Thanks Dave in Texas.

I just wanted to generalize about what the closing of a partnership involves for bookkeeping and tax reporting purpose. I think once these foundational ideas are known, one can back into the number variables. I am just trying to find out about the closing aspects of the books for a partnership. The rest is academic, so to speak; I need two or more heads on this one.

Thanks, again.

rfk

[DaveinTexas]

To start

Thanks Dave in Texas.

I just wanted to generalize about what the closing of a partnership involves for bookkeeping and tax reporting purpose. I think once these foundational ideas are known, one can back into the number variables. I am just trying to find out about the closing aspects of the books for a partnership. The rest is academic, so to speak; I need two or more heads on this one.

Thanks, again.

rfk

Begin with a debit to partnership distribution and a credit to cash to distribute the cash in the bank account. Distribute all remaining assets to the partners (partners retain assets using the adjusted basis of the assets in the hands of the partnership).

Any remaining liabilities assumed by partners are treated as contributions of capital. See § 1.752-1 Treatment of partnership liabilities for further detail. Any relief of liabilities for any partner is treated as a distribution to that partner.

View the partnership agreement to identify any provision that states that a negative capital account must be restored prior to termination.

Make sure capital accounts on K-1s have a zero ending balance. View the Partnership Audit Technique Guide for further info on this issue. http://www.irs.gov/Businesses/Partne...ished-12-2002)

As I said, many complications arise in this area of tax law. Not an easy subject and not something that can be explained away very easily. What I have stated is just a bit to get you started. If the assets have not been fully distributed yet, it may behoove the partners to close it out when that event occurs. This gives you a bit of time to file the return, file an extension, pay close attention to the due date of the final return (15th day of the 4th month after the close of the final year). This will also give you more time to become more well versed in this subject.

I wish you the best of luck with this, this will be a good learning lesson. Also, consider connecting/networking with a preparer in your area that is very familiar with partnership taxation, maybe they can walk you through the processes (that is if they are not busy with tax season).