LLCc: member withdrawal = entity change?

Discussion in 'Tax' started by n_o_s_p_a__m@mail.com, Jul 15, 2005.

  1. Guest

    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

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    , Jul 15, 2005
    #1
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  2. wrote:

    > 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 :)

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Phoebe Roberts, EA, Jul 17, 2005
    #2
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  3. Guest

    wrote:

    > 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

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    , Jul 19, 2005
    #3
  4. Guest

    Phoebe Roberts, EA wrote:
    > 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. 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!!

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    , Jul 19, 2005
    #4
  5. wrote:
    > Phoebe Roberts, EA wrote:
    >> 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. 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

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Harlan Lunsford, Jul 21, 2005
    #5
  6. Guest

    Harlan Lunsford wrote:
    > wrote:
    >> Phoebe Roberts, EA wrote:
    >>> 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. 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.)


    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)


    >> 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.


    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.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    , Jul 22, 2005
    #6
  7. Harlan Lunsford <> wrote:
    > wrote:
    >> Phoebe Roberts, EA wrote:
    >>> 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

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2005) - All rights reserved. >>
    << ======================================================= >>
     
    Stuart A. Bronstein, Jul 22, 2005
    #7
  8. rjskal

    Joined:
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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/
     
    rjskal, Feb 10, 2017
    #8
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