Admission of new Partner

[Harvey Lucas]

I just picked up a new client, an LLC taxed as a partnership.

I'm uncertain regarding how to report regarding allocations because of the midyear admission of a new partner.

Lets assume the following:

Jan 1st 2006 through May 1st 2006:
Partnership profit for this period is $100,000
There are three partners,
A is 34%
B is 33%
C is 33%

June 1st 2006, they added a new partner D.
D contributed $25,000 cash to the partnership and became a 25% partner.
So then for the period June 1st through December 31st 2006 there are four partners,
A is 25%
B is 25%
C is 25%
D is 25%.
Partnership profit for the period June 1st through December 31st is $200,000

Questions:
Do I file one 1065 for Jan thru May and another for Jun thru Dec?

If I file only one 1065 for the entire year...how do I allocate the profits on the k1 forms? Maybe issue one set of k1 forms for A B C for period ending 5-31-06, and then another set of K1 forms for A B C D for period ending 12-31-06?

How would you do it?

Thank You,
Harvey Lucas

[Harvey Lucas]

I think I've got It

I think I've answered my own question.
I'll post it here, if I am way off base I'm hoping some
of you may have time for a simple Yay or nay.

I will file only one 1065 for calender year 2006.

I will make allocations and file one set of k1 forms and allocate profits to
the partners based on each period.

Partner A's K1 will show:
1-1 to 5-31 34,000
6-1 to 12-31 50,000
K1 total 84,000
% owned at beg of yr 34%
% owned at end of yr 25%

Partner B's K1 will show:
1-1 to 5-31 33,000
6-1 to 12-31 50,000
K1 total 83,000
% owned at beg of yr 33%
% owned at end of yr 25%

Partner C's K1 will show:
1-1 to 5-31 33,000
6-1 to 12-31 50,000
K1 total 83,000
% at beg 33%
% at end 25%

Partner D's K1 will show:
1-1 to 5-31 0
6-1 to 12-31 50,000
K1 total 50,000
% at beg 0%
% at end 25%

Sound pretty straight forward to me but I don't do a lot of partnership
returns.
Does this sound about right?

Thanks,
Harvey Lucas

[BOB W]

You need.....

........... to also get the percentage of the annual profits based on the number of days as a member. That percent is how to allocate the total net profits for that year for each member. Going forward to next year will be a breeze.

[Harvey Lucas]

Thank You Bob

Yes, that makes sense, I need to show each partners % of Profits/Losses at the beginning and end of the year. The %'s I listed above were only for the % of ownership.

To arrive at the % of Profit/Loss at year end, could I simply take the partners share of profit for 2006, and divide it by the total profit?

For example, I know that A's share of profit for the year is 84,000. The total partnership profit for the year is 300,000, that means that A's % of the total profit is 28%.

On A's K1, I list his % of profit at beginning of year at 33% and his end of year % of profit at 28%.

B's is 83,000 of 300,000 and so is beg yr 33%, his end of yr is 27.67%

C's is same as B's.

D's is 50,000 of 300,000 and so beg yr 0%, his end of year is 16.66%

Then for 2007, all partners are 25% beg and end of yr in all catagories, unless there is a change in 2007.

Sound OK?

Thanks,
Harvey Lucas

[BOB W]

Why is ............

................ A different than B & C?????

Ownership maybe should be shown as 33.333 for 2 members and 33.334 for the other. 1% can be a big number and is not a fair or accurate reporting for equal partners. The ownership percent can be carried out to even more places to get the figures even closer.

I would take the end of year profit and use the number of days owned by each partner to develop % of profit allocated to each partner.

The other choice is to review the profit at the end of 3 partner period and assign 1/3 to each of A B &C then take the 4 partner period and divide that period by 4 and develop that profit for each partner. Then add both periods together, per partner, and divide each partners $s into total profit to come up with % of profit for the year.

[Harvey Lucas]

Oops

Thanks Bob,

I made a mistake in my last post.

A's % was 34% at beg of year.

so 34 + 33 + 33 = 100

Thanks again, I think I've got it now.

Harvey Lucas

[BOB W]

................ A different than B & C?????

Ownership maybe should be shown as 33.333 for 2 members and 33.334 for the other. 1% can be a big number and is not a fair or accurate reporting for equal partners. The ownership percent can be carried out to even more places to get the figures even closer.

I would take the end of year profit and use the number of days owned by each partner to develop % of profit allocated to each partner.

The other choice is to review the profit at the end of 3 partner period and assign 1/3 to each of A B &C then take the 4 partner period and divide that period by 4 and develop that profit for each partner. Then add both periods together, per partner, and divide each partners $s into total profit to come up with % of profit for the year.

Harvey> Please reread the above more closely......33.333333333

[Harvey Lucas]

?

Hi Bob,

I read it again? Am I missing something?

A,B, and C were not equal partners.

A was 34%, B was 33% and C was 33%.

34 + 33 + 33 = 100 right?

I did it on my calculator and got the same answer twice

Was there something else?

Good luck to you in the final stretch to April 15th.

Thank You,
Harvey Lucas

[S T]

I think

I think what Bob W is trying to convey, is not round the % up to a whole, but use fractions, such as 33.333, 33.333, and 33.334, makes a few dollars difference. Carry the decimal points. 3 or 4.

Sandy