LLCc: member withdrawal = entity change?

[n_o_s_p_a__m]

Hello,

My two-member LLC has become a one-member LLC due to the
withdrawal of one member.

My questions are:

Do I need to file any forms to alert the IRS or state that
the LLC will no longer be filing as a partnership, but via
self-employment?

Does the LLC need to alert the IRS or state that the member
withdrew?

Does the LLC need to file any form to change into a
"disregarded entity"?

And does "disregarded entity" status take away the "limited"
part of LLC liability?

This LLC is formed in NY.

Thank You,
KJ

 

[Phoebe Roberts, EA]

My two-member LLC has become a one-member LLC due to the
withdrawal of one member.

Do I need to file any forms to alert the IRS or state that
the LLC will no longer be filing as a partnership, but via
self-employment?

A final LLC tax return, due on the 15th of the 3rd month
following the month the second owner withdrew.

Does the LLC need to file any form to change into a
"disregarded entity"?

It needs a new EIN.

And does "disregarded entity" status take away the "limited"
part of LLC liability?

Not in theory.

Phoebe

 

[pgattocpa]

My two-member LLC has become a one-member LLC due to the
withdrawal of one member.

My questions are:

Do I need to file any forms to alert the IRS or state that
the LLC will no longer be filing as a partnership, but via
self-employment?

We do not have a "clent:CPA" relationship and this response
should only be considered as you consult whomever is your
professioanl advisor. The answers below are for
entertainment purposes only. This is an exhibition, not a
competition. Please, no wagering.

The LLC "techincally terminated" *as a partnership* (it
still exists as an LLC) on the date the other member
withdrew. You "inform the IRS" by filing a "short period"
(aka "stub period") Form 1065 for the period starting on the
first day of the LLC's tax year (usually 01/01/YYYY) and
ending on the date of the other member's withdrawal. (There
is a box near the top of the form that you will "X"
indicating it is a final return.) Each of the two K-1s will
also be "X"d final.

The NY state return also has a box to mark as final. If I
recall correctly, NY does not have it's own K-1s, but rather
a lit of the partners and then you attache the federal K-1s.
(It's been a long time, so I may be incorrect on this.)

If the LLC also filed NYC and NYM returns, then there will
be similar rules.

Does the LLC need to alert the IRS or state that the member
withdrew?

Not per se, the K-1 marked "final" does the trick. Although
yours will also be marked final, you "inform" the IRS that
you are still a member by including the LLC's income / loss
on your Sch. C. Remember that your Sch. C income / loss
will only be for the period beginning the day after the
other member's withdrawal and ending on the last day of the
LLC's tax year. You, and you alone, will have the full year
of the LLC's income / loss reported on your Form 1040 in two
places: Sch. E will have the portion when there were two
members (and only your percentage) and Sch. C will have the
portion when you were the only member (i.e., 100%)

I've never seen a NY individual return; it may be the same
as the 1040 and it may not.

Does the LLC need to file any form to change into a
"disregarded entity"?

Not for federal purposes; I do not know NYS's rules.

And does "disregarded entity" status take away the "limited"
part of LLC liability?

This is a legal question. The LLC never gave you limited
liability against your own actions so that part does not
change. I would suspect for other items that it may depend
on how "separate" you keep your personal life from you LLC.

This LLC is formed in NY.

See above for NY answers.

Peter C. Gatto, CPA

 

[pgattocpa]

(e-mail address removed) wrote:

It needs a new EIN.

I'm not so sure this is the case. A single-member LLC
(SMLLC) with employees will have an EIN separate from the
sole member's SSN for employment tax reporting purposes.
And I cannot find (in my limited search) that a new EIN
would be required merely because of a classification change
from partnership to disregarded entity.

The regs under =A76109 seem to require that an LLC that
changes from a partnership to a disregarded entity use the
single member's SSN. However, the employee issue above and
possible state statutes that require a SMLLC to have an EIN
separate from the sole member's SSN would trump this. See
also the instructions for Form SS-4.

The nice thing about corporate dissolutions is that Form 966
is used to report the dissolution to the IRS. One of the
purposes the IRS uses the form for is to cancel the EIN of
the corporation. There is no analog for partnerships or
LLCs, although partnerships would include a copy of the plan
of dissolution with the final tax return and perhaps the IRS
cancels the EIN that way. However, since the LLC is not
being dissolved, that would not help in this case.

Once again, I am being long-winded!!

 

[Harlan Lunsford]

I'm not so sure this is the case. A single-member LLC
(SMLLC) with employees will have an EIN separate from the
sole member's SSN for employment tax reporting purposes.
And I cannot find (in my limited search) that a new EIN
would be required merely because of a classification change
from partnership to disregarded entity.

Phoebe is correct about needing a new EIN when changing from
a multi member LLC to a single member. Been there, had to
do that (for a client.)

(schnipped)

The nice thing about corporate dissolutions is that Form 966
is used to report the dissolution to the IRS. One of the
purposes the IRS uses the form for is to cancel the EIN of
the corporation. (again snipped.)

Sad to say but IRS never cancels an EIN. Once issues, it's
there for perpetuity, even if not actively used.

ChEAr$,
Harlan Lunsford, EA n LA

 

[pgattocpa]

Phoebe is correct about needing a new EIN when changing from
a multi member LLC to a single member. Been there, had to
do that (for a client.)

Thanks. Perhaps it is because the 1065 is marked final and,
thus, the IRS puts the mutli-member LLC's EIN on "inactive"
status? (See semantics below.) I wonder where I would find
that in the regs . . .

(schnipped)

Sad to say but IRS never cancels an EIN. Once issues, it's
there for perpetuity, even if not actively used.

Perhaps my saying "canceling the EIN of the corporation" was
not elegant. Perhaps better is "disassociates the EIN's
active status from the corporation"? IOW, we are saying the
same thing as the IRS is no longer looking for filings
associated with that EIN any more.

It's interesting though that the IRS wants Form 966 from
corporations but does not have an analog for partnerships to
complete. One of our advisors is a former IRS muckety-muck
who wrote some of the consolidated return regulations. He
is the one who told me that the main purpose of the 966 is
to (and I'll go back to my venacular) cancel the EIN of the
corporation. The corporation's plan of liquidation is still
filed with the return that is also marked final (just like
the partnership) yet it still needs to separately file the
966.

 

[Stuart A. Bronstein]

Phoebe is correct about needing a new EIN when changing from
a multi member LLC to a single member. Been there, had to
do that (for a client.)

I'd guess that's because an LLC is not recognized for
federal tax purposes, but is treated as other types of
entities under different circumstances.

Stu

 

[rjskal]

Harlan Lunsford <lunstax@belllsouth.net> wrote:
> (e-mail address removed) wrote:
>> Phoebe Roberts, EA wrote:
>>> (e-mail address removed) wrote:

>>>> Does the LLC need to file any form to change into a
>>>> "disregarded entity"?

>>> It needs a new EIN.

>> I'm not so sure this is the case.

> Phoebe is correct about needing a new EIN when changing from
> a multi member LLC to a single member. Been there, had to
> do that (for a client.)

I'd guess that's because an LLC is not recognized for
federal tax purposes, but is treated as other types of
entities under different circumstances.

Stu

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The answer to the EIN is found in Rev Rul 2001-6. The SMLLC is to use the EIN of the partnership.
https://www.bna.com/tax-reporting-issues-n17179882483/