LLC Buyout of 50% partner by the other 50% partner--makig one partner now 100%

[Super Mom]

I have an LLC with 2 partners 50/50. One partner bought the other one out in August. Wondering if that was maybe a technical termination and I should file a 1065 up to buyout (in that case penalties would prob apply---want to avoid if possible) and I'm sure the existing partner would elect for C, and maybe do C for the rest of the year???

Also, I am in NC and am assuming that would have no bearing on the LLC status with the Secretary of State and that would only need name changes on the annual report as far as they are concerned, short of calling the secretary of state's office I have no idea of how to confirm that. Does anyone in NC know that part? I HATE calling government agencies!!!!!

[Burke]

First question, yes -- file 1065 with 2 K-1's up to buyout. Why would there be penalties? File Sche C for remainder of year for 100% client.
As far as NC state agency that authorized LLC, they usually have forms on line to show termination or change. Go on their website.

[TaxGuyBill]

I agree, 1065 short year and a Schedule C for the rest of the year. Assuming an extension was not filed, late-filing penalties will apply.

As a side note, it is not a "technical" termination of the partnership, it is an actual termination (the Partnership does not exist anymore).

[Super Mom]

First question, yes -- file 1065 with 2 K-1's up to buyout. Why would there be penalties? File Sche C for remainder of year for 100% client.
As far as NC state agency that authorized LLC, they usually have forms on line to show termination or change. Go on their website.

Wouldn't there be penalties if it terminates on that date earlier in the year? Maybe we could avoid that if we file for the year on that portion of income, and then I can do for the year on C for the other portion of income????

[Burke]

I guess you are talking about penalties for late filing. Was there income to report? Did it all flow through to the partners on K-1? If so, and the partner is a cash-basis taxpayer, he would not report the income until his 2016 tax return is filed, and as long as that is reported and filed by the deadline 4/15/17, I think he could get a waiver of any penalties. I have, because there was either no income tax due, or no income tax paid late by the partner(s).

[Super Mom]

I guess you are talking about penalties for late filing. Was there income to report? Did it all flow through to the partners on K-1? If so, and the partner is a cash-basis taxpayer, he would not report the income until his 2016 tax return is filed, and as long as that is reported and filed by the deadline 4/15/17, I think he could get a waiver of any penalties. I have, because there was either no income tax due, or no income tax paid late by the partner(s).

That's my thoughts. I guess the 1065 would be for income up to buyout and C would be for income after, right?

[Super Mom]

Ok now that I am reading the buyout contract, the bought out partner is to have no obligations for the company, however it says he will give up claims to assets after all the payments are made (in 5 years). So, I'm thinking the business stays on 1065 until paid in full, I take his percentage off of profits and liabilities but leave it on for assets. I assume he will not need a K-1 unless assets are sold or something like that with assets. After the 5 years is complete, the 100% partner can then elect schedule C if he wants and the laws don't change. Am I right?