Partner K1 advice

[mhcpa1964]

Partnership was formed in 2022. The partners are a SMLLC filing as S corp (and that company was formed prior to 2022), a SMLLC and an individual. I use ProSeries. On the K1 for the SMLLC partner, I listed the partner status type as LLCC for corporation. The tax accountant preparing the SMLLC's tax return has asked me to change that status type from corporation to disregarded entity.

In ProSeries, the status type has a drop down menu with entity type options. I see DE is available, so I selected it. Then I entered the SMLLC owner's name and social security number, but ProSeries shows an error on the SSN field. To work around the error, ProSeries indicates to write APPLD FOR in the SSN space.

1) How do I overcome this error? Is it a big deal?
2) Do I need to formally amend the tax return for the entity type change? Or can I get by with documenting the file?

Any assistance is appreciated.

[BOB W]

Something doesn't make sense, please reread your post. Maybe it's me?

[Rapid Robert]

No, it's not you.

"The partners are a SMLLC filing as S corp (and that company was formed prior to 2022), a SMLLC and an individual."

So, that is 3 partners, right?

"The tax accountant preparing the SMLLC's tax return"

Which SMLLC? If it's the one filing as an S-corp then then it is an 1120S, otherwise for the other one, it is a Schedule C?

Can't say I've had anything like this situation, but I thought once an election for S-corp status was made, the entity is treated for all tax purposes exactly as if it is an S-corp.

[kathyc2]

For the SMLLC that is a disregarded entity, choose DE on dropdown on K1 worksheet. It should then turn pink in 2 boxes. Enter name of LLC and TIN of LLC.

I don't know that you need to amend, but you could put this info and and reprint the K1 for that partner.

[BOB W]

I'm still confused, but that's me.

[kathyc2]

I'm still confused, but that's me.

I way I read it is there are three partners.

#1 is a LLC taxed as an S-corp
#2 is a LLC taxed as a disregarded entity
#3 is a person that is not a LLC

[BOB W]

Great explanation, BUT I would walk away from this client. Way above my pay grade.

[mhcpa1964]

HI all - Pardon my delayed response. I've been unplugged for a few days.

The partners are as katchyc2 lists. My concerns only apply to partner #2, the SMLLC filing as a disregarded entity.

I did re-read the 1065 instructions and see that for partner #2 (the LLC taxed as a DE) should be listed in the name of the owner and use their TIN. I originally used the DE's name and TIN. So that question has been answered.

In Pro Series, I changed partner #2s K1 from the business name and TIN to his personal name and SSN.

I provided the revised K1 to the accountant filing that person's return. That accountant suggest I fully amend the 1065 emphasizing the K1 change. I'd sooner not do that. Not because I'm lazy, but because I don't see the need. I feel this is akin to scrivener's error. The money amounts are accurate and the taxpayer is properly including the K1 on his Schedule C.

I really appreciate all of you for taking the time to help talk me through this. You've been very helpful.

[TaxGuyBill]

The money amounts are accurate and the taxpayer is properly including the K1 on his Schedule C.

I hope they aren't putting it on Schedule C. :-)

The potential problem that I see is that you told the IRS that EIN belongs to a corporation. So it is hypothetically possible the IRS will be sending a notice to that EIN number asking for the corporate return.

As for amending, why not do it? You've already made the changes on the K-1. Won't it only take a few seconds to click the 'e-file amended return' button in your software and e-file it?

[mhcpa1964]

Thanks TaxGuyBill. I agree that the IRS could be on the lookout for wrong information, which could cause a future letter to the TP. And no, the TP's preparer is not using Sch C.

I appreciate eveyrone's chime in. You've been very helpful.