Discussion:Partnerhsip LLC to disregarded entity
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Discussion Forum Index --> Tax Questions --> Partnerhsip LLC to disregarded entity
| 3 July 2007 | |
| California LLC classified as partnership ceased to exist when one of the members bought the other member's interest and became a single member LLC. Question - What are the requirements of filing last tax return - should it be marked final, should the assets be zeroed out? Please advise
Thank you | |
| 3 July 2007 | |
| Yes, check the due date of the return - 15th day of fourth month after end of year. Year ended for 1065 when it ceased being owned by at least 2 members. You may want to get professional tax help with this return, as well as the tax return of the single member owner. | |
| 3 July 2007 | |
| Thanks!
What about CA return - it shouldn't be marked final, should is? What about CA K-1s to both members? | |
| 3 July 2007 | |
| I don't do any CA LLCs, but it is my understanding that the LLC will still continue to file and pay a fee to California, even as a SMLLC. | |
| 3 July 2007 | |
| For both members? Even for the one that is still a single member of that LLC that will continue filing 568? | |
| 3 July 2007 | |
| You will have to continue filing the LLC returns for CA to pay the gross receipts fee. You therefore have 2 LLC returns to do for 2006. No K-1s when it becomes a SMLLC. Read the instructions for Form 568. Once a SMLLC, all activity is reported on the 1040 as though the LLC does not exist. But it does - again - so CA can get the LLC fee. Don't forget to make the minimum $800 payment for the SMLLC. It is due w/i the first 3 1/2 months. Don't forget to file your protective claims for refund w/ the FTB for the LLC fee (not the $800 minimum) because there are some cases challenging the constitutionality of the fee, and so far, the FTB has lost. | |
| 3 July 2007 | |
| Still the partnership has been dissolved, so it is a final K-1 if you do not exist as a partnership any longer.... | |
| 3 July 2007 | |
| Two CA form 568s doesn't sound correct. Will the taxpayer get stuck paying the $800 minimum tax twice? Do they get to split the year for purposes of the gross receipts tax?
The CA LLC didn't dissolve just the federal partnership. | |
| July 3, 2007 | |
| Two Form 568's is correct. Section 24634(a)(4) of the Cal Rev & Tax Code requires a CA short-period return whenever there is a federal short-period return. Gross receipts are divided between the two short periods. | |
| 4 July 2007 | |
| I checked into this just last year. 2 $800 minimum pymts are required and you will have to make the $800 minimum payment each year. To clarify: the first 568 will be a full LLC return. The 568 that you file for when it is a SMLLC is simply to report gross receipts and pay the resulting gross receipts fee. | |
| July 4, 2007 | |
| Jessica, it seems we have differing opinions. Do you have any references to support your position? (I'm interested because there could be some significant differences in LLC fees depending on the facts and circumstances and the method used). In my review of the Cal Rev & Tax Code, I find the following: Section 17942 provides that the LLC fee is determined based on total income for the taxable year. Section 24634(c) provides that “if a return is required to be filed under this section for a period of less than 12 months, that period shall be deemed to be a taxable year” (my previous post explains why I think two short-period returns are required to be filed under section 24634). Based on this, it seems that each short-period constitutes a taxable year and therefore the total income used to compute the LLC fee must be determined for each short-period return.
Consider a simple example: Individual A and Individual B form AB, LLC on January 1. AB, LLC is treated as a partnership for federal and CA purposes. On July 1, A buys B's interest. Assume that during the 12-month period ending on December 31, the LLC had $12M of total income for purposes of computing the CA LLC fee and that $6M of the total income was earned during the 6-month short-period ending on June 30. Under the “JAD method“ (assuming that I understand it), AB, LLC would file two CA LLC returns, make two $800 franchise tax payments but pay only one $11K LLC fee. Under my method, there would be two LLC returns, two $800 franchise tax payments and two $11K LLC fees (one or each short period). Under these facts, I (obviously) prefer the JAD method -- so please show me the light... | |
| 4 July 2007 | |
| I have no light to shed..I agree exactly with your example. I'm sorry if my post was unclear. TonyM had said that 2 568s didn't seem right to him. I was trying to specify that the 568 for the first part of the year is the full return with Schedule K-1s etc. The second 568 is a different animal in that it is only for the gross receipts fee. I thought that maybe his confusion might be caused by wondering why there would be a second 568 with a Schedule K-1 if the activity for that period is reported directly on the individual income tax return. Just a guess on my part - maybe his question had nothing to do with that. I agree with you - 2 returns, 2 $800 payments, 2 separate gross receipts fee calculations (hopefully soon to be determined unconstitutional!) Happy 4th by the way. | |
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