Husband & Wife Partnership Converting to S-Corp

[K_CPA]

Hello:
I've been researching this and have been struggling to find a satisfactory answer. I'm hoping someone can point me in the right direction.

Just started working with a company that is owned 50/50 by husband & wife; currently filing a 1065 for the company, and filing MFJ on their 1040. We are going to be making an S-election. As part of this move they want to remove the wife from ownership of the business so that the Husband owns 100%.

What would be the proper way to report this?

[spanel]

You have not mentioned if this is an LLC partnership.

If yes, file form 2553 with the IRS.

If not an LLC, you will need to end the partnership and start from scratch. Either create and LLC and elect s-corp or create a Corporation and elect s-corp (either way with the 2553)

Chris

[Rapid Robert]

If in a community property state, there might be different rules. For example, I know the spouse of a 100% S-corp shareholder is treated for fringe benefit purposes as a >2% shareholder.

I wonder what the motivation is for adding this extra complexity to the transaction.

[K_CPA]

You have not mentioned if this is an LLC partnership.

Yes, this is an LLC. So with the 2553, would you just list the husband as owning 100% of the stock? We are not in a community property state, so I don't believe the wife has to sign it.

[Lion]

This may be a legal question AND a state-specific question. In that state, you have a state entity, a MMLLC, with both H&W as members. In that state, how does the wife/one member sell/sign-over her membership units to her husband/another member? Or, do you make the S-election, and then the wife sells/signs over her share to her husband/another shareholder?