Dad and son formed LLC, partnership. Now, son in middle of divorce, father changed operating agreement to father being sole member. now do I have to file the LLC as a sole prop? do a partnership return as zeros, no money in, no money out? operating agreement was dated at beginning of year. then next year, if all straightens out, do a new operating agreement and resume partnership? WHat all considerations are there involved? Possibly could son be a 1% partnership owner? No money changed hands.
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If Dad is the only member it has become a SMLLC so I think you need to file Sch C with 1040 instead of 1065.
I am not sure IRS will accept a 1065 with only one member??Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR -
You have a "short year" for the partnership, and need to file a final 1065 for the period when the LLC had two members. It is due 3.5 months after it became a Single Member LLC.
For the rest of the year, it is a sole proprietorship.
If the son did not receive anything by giving his share to his father, he may need to file a gift tax return.
Even if the son does gift his share to his father, I suspect the son's wife's divorce lawyers are going to try to get something out of it.Comment
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Can I file the ptnshp as 0 income, 0 expenses. they expect to continue the partnership llc in future years. most of the the assets were dad's anyway, son mostly worked in the llc for his share.Comment
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You will need to file 8832 to change from 1065 to 1040 tax treatment. My understanding is that you would then need to wait 5 years to change back to 1065 if the desire is to keep the same LLC.Originally posted by JenMO View Post
It sounds like the reason for the change is to protect assets from divorce. Has client consulted w/ attorney if changing entity will produce the expected results?Last edited by kathyc2; 05-27-2015, 11:11 AM.Comment
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yes, that's why the new agreement. I feel like even if we give son 1% of ptshnp, it will open up the LLC to what they are trying to get a way from. Dad had told him I could give him a small %. The operating agreement talks about taking in partners/members at the discretion of the single manager. It's just getting more complicated and involved that I feel isn't my responsibility, but.....Comment
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I'm guessing the wife's attorney will still go after the assets of LLC even if the operating agreement was changed to remove son. That's why I suggested father speak w/ attorney b4 making changes. Could be it won't make any difference but increase son's attorney fees. You may also want to consider if you would need to testify as to if the change was done for business reasons or strictly for divorce asset reasons. You are being pulled into the middle of a mess, and may want to consult with your liability insurance company as to their opinion as to what liabilities you may be exposed to.Comment
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Another thought...
You indicated that the operating agreement was changed at the beginning of the year. 2014? Was son treated as an employee rather than member during all that time? IOW, did he receive paychecks with taxes withheld as opposed to draw/guaranteed payments?
If not, the change to the operating agreement might not be valid if the way the company books were handled did not reflect the one owner status.Comment
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I don't know, this is a regular guy trying to protect his assets, but trying to do it himself, pretty sure of himself. this may have to be passed on if he insist on the change. I sure don't want to be blamed for something that comes up later. this operating agreement wasn't filed anywhere, just for his records, so how binding is it?Comment
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I just don't see that what he is doing is protecting his assets. Sounds to me like he's creating a legal and tax clustersomething. The son had as asset in his share of the LLC, and the father just "took" it for no consideration. It doesn't even sound like the son signed off?
I can be quite direct w/ clients, and if it were me I would sit client down and insist that he speak with an attorney to see what legal problems this may cause before I prepare a tax return w/ change of ownership.Comment
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It does sound like he is changing it because of the son's divorce. If I was in this position, I would tell father to consult an attorney, in addition, that attorney probably works with a CPA/Accountant on a regular basis for clients. So have the attorney send him to another accountant. This way they can work together... unless you feel comfortable enough to do it.
Now that is me. I recently had to do this with a client in which fraud was suspected. I told her to go to a attorney and get a CPA because I wasn't knowledgeable in such situations. Which is true.Comment
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thanks, will call him and explain the problems. I don't want to be the reason things didn't come out right for me or him.Comment
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