1. Home
  2. Taxes General Forum
  3. Changing New York LLC from partnership to proprietorship

Changing New York LLC from partnership to proprietorship

Through 2015 I was a member of a two-member LLC, which we treated as a

50/50 partnership. The other guy wants to do other stuff, so in 2016 I want to make it a single member LLC that I own. So we've done this:

  • Resolved to dissolve the partnership

  • Distributed the assets, which was just cash in the bank

  • Bought out the other guy's share for FMV. We have one receivable and I paid him 50% of what I expect it'll be.

  • Checked that the partnership has no liabilities. I prepaid the accountant for the 2015 partnership return. Over the entire time the LLC's been active we've only done business with a handful of people and I'm reasonably sure there's no lurking bills.

As far as I can tell, that's it other than telling the people with whom I continue to do business that the EIN has changed from the partnership's to mine, by sending them a new W-9.

Nothing in the LLC's articles of organization or periodic returns say anything about its tax treatment, and the Nolo stuff I've found online say NYS requires nothing to end a partnership other than checking the "final" box on the return.

My accountant has never run into this situation before and finds it hard to believe that it's this easy. What (if anything) am I missing?

Reply to
John Levine
Loading thread data ...

There are two separate issues. One is taxation. Since the entity was taxed as a partnership, it was disregarded for tax purposes. So yes, it is probably that easy.

The other issue is dealing with the LLC. You can buy out his interest in the LLC as part of the transaction, and it becomes yours. Again, there should be no tax issues. Aside from notifying the state about the change in who is running the LLC, I don't see any issues there, either.

Reply to
Stuart Bronstein

Uh, wait. It was a partnership and we filed partnership returns and K-1's every year we had income and will file a final return for 2015. Going forward as a single member it's disregarded and shows up on my return on Sched C, right?

Yup, I bought him out. Wouldn't that be a capital transaction? If he (to make up some numbers) originally put in $100 and I bought him out for $1000, isn't that a $900 capital gain for him and a $1000 increase in my basis? If not, what is it?

The state contact for the LLC was me all along, so as far as I can tell, there's nothing to change there.

I looked on the IRS web site and was surprised that it very specifically says that if an LLC changes from multi-member to single-member or vice versa, it keeps the same EIN.

Reply to
John Levine

If you want it to be disregarded, right.

Depends on how you structure the purchase agreement. If you structure it as straight purchase of his interest in the LLC, then right in concept. But with a partnership I think that basis can go up or down depending on distributions (or lack of distributions).

But since it's a disregarded entity, my thought was that you could structure it like a purchase of his interest in the LLC assets. In that case it would be a little more complicated.

entity, even though it is disregarded in general for tax purposes.

Even for people who run a Schedule C business, I generally recommend that they get an EIN for the business, to minimize distribution of their personal Social Security number.

Reply to
Stuart Bronstein

Since the LLC was a partnership, it already has an EIN. And since I have other Schedule C businesses, I already have an EIN. I was assuming that if the LLC becomes single-member, it would then use my EIN, but the IRS appears to be telling me that's wrong, it keeps the EIN it has. But the instructions for Schedule C say:

Single-member LLCs. If you are the sole owner of an LLC that is not treated as a separate entity for federal income tax purposes, you may have an EIN that was issued to the LLC ( in the LLC's legal name) if you are required to file employment tax returns and certain excise tax returns. However, you should enter on line D only the EIN issued to you and in your name as a sole proprietor. If you do not have such an EIN, leave line D blank. Do not enter on line D the EIN issued to the LLC.

I see what it says, but this sounds like a recipe for trouble, since there's nothing on the return to link the LLC's EIN to me.

Reply to
John Levine

You report it on your Schedule C - that's how they link it to you.

Reply to
Stuart Bronstein

Except that the instructions for Schedule C say to use my EIN, not the LLC's EIN.

I suppose that since the name of the LLC is on the Schedule C they could look up the name and hope they got the right one but ugh. My LLC happens to have a name used nowhere else in the U.S., many LLCs are not so easy to identify.

Reply to
John Levine

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.