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LLC Termination - Short Year Tax Return

Technical topics regarding tax preparation.
#1
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My client is an LLC that had two owners that split everything 50/50. One of the owners left the LLC, effective June 30, 2019. From that point on, I believe the LLC would be an disregarded entity, reported on Schedule C of the remaining owner's personal return.

So, I think I need to file a final Form 1065 for the period January 1, 2019 to June 30, 2019, which would have a filing due date of September 16, 2019. My question is this: am I supposed to use a 2018 Form 1065 for this? The 2019 Forms 1065 won't be available by then. Or, should I put the return on extension and file it later, when the 2019 Forms 1065 have been released.

Thanks in advance for any insight.
 

#2
philly  
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I found the following on the web. I believe it is from IRS Pub 541.

Terminating a Partnership(p4)rule

Terminating a Partnership
A partnership terminates when all its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership.

See section 1.708-1(b)(1) of the regulations for more information on the termination of a partnership. For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1.708-1(c) and 1.708-1(d) of the regulations.

Date of termination.(p4)rule


The partnership's tax year ends on the date of termination. The date of termination is the date the partnership completes the winding up of its affairs.


Short period return.(p4)ule

If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. The return is due the 15th day of the 3rd month following the date of termination. See Partnership Return (Form 1065), later, for information about filing Form 1065.

It looks like the final return is due September 15, 2019. You could probably use a 2018 1065 indicating a short fiscal period and check the box as final return or put the return on extension and wait for the 2019 1065 forms.
Last edited by philly on 9-Aug-2019 9:47am, edited 1 time in total.
 

#3
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Thanks for the reply. This is all consistent with what I posted. I'm still unclear about whether I'm supposed to use a 2018 Form 1065 for the short year final return, since the 2019 form isn't available yet.
 

#4
philly  
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It looks like the final return is due September 15, 2019. I would put the return on extension for 6 months until March 15, 2020 and wait for the 2019 1065 forms.
Last edited by philly on 9-Aug-2019 10:07am, edited 1 time in total.
 

#5
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Yes, if you want to go ahead and file, use the 2018 form. Per the 1065 instructions:
Period Covered
The 2018 Form 1065 is an information return
for calendar year 2018 and fiscal years that
begin in 2018 and end in 2019. For a fiscal
year or a short tax year, fill in the tax year
space at the top of Form 1065 and each
Schedule K-1.
The 2018 Form 1065 may also be used if:
1. The partnership has a tax year of less
than 12 months that begins and ends in
2019, and
2. The 2019 Form 1065 isn't available
by the time the partnership is required to file
its return.
However, the partnership must show its
2019 tax year on the 2018 Form 1065 and
incorporate any tax law changes that are
effective for tax years beginning after 2018.
 

#6
LW25  
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I have this come up all the time.

When the 2019 forms are not yet available, we take the 2018 forms and change all the dates on the forms to "2019" using an advanced version of Adobe Acrobat -- and I'm talking about EVERY place on the forms where the "2018" appears. And, of course, write in the short period at the top of page 1 in the applicable space. File the 2019 return manually. About 99% of the time, there's no problem with the IRS processing the return.

EDIT: The program that I use for editing PDF files is Adobe Acrobat XI.

But, even when I didn't have that program years ago, I handled the problem by manually crossing out the prior year date with a pen, and I wrote in the current year.
Last edited by LW25 on 9-Aug-2019 10:14am, edited 1 time in total.
 

#7
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#8
sjrcpa  
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:roll: And you would have to make sure to take into account any 2019 tax law/limitation changes if you prepare the return on 2018 forms.
Nevermind. That was mentioned in the excerpt from the instructions.
 

#9
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I have done short-periods before on the prior year forms when the client doesn't want to extend or it isn't possible to get the new forms by the extended deadline. The key is to make sure you incorporate tax law affecting 2019, which can be tricky.

You can either use the 2018 forms with the short tax period printed at the top of page 1 of the 1065, or extend and use the 2019 forms.

If you use the 2018 forms and previously efiled the 2018 tax period, you won't be able to efile and will have to paper file the short-period IIRC. The IRS only allows one efile per EIN for each tax form year. It will get rejected at the federal level if you efile.
 

#10
DavidG  
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Not true. Recently we prepared a 2018 calendar year return, then a short 2019 return on 2018 forms. Both tax returns were successfully efiled.

ManVsTax wrote:If you use the 2018 forms and previously efiled the 2018 tax period, you won't be able to efile and will have to paper file the short-period IIRC. The IRS only allows one efile per EIN for each tax form year. It will get rejected at the federal level if you efile.
 

#11
HowardS  
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The IRS may allow two efiles but your software provider may not.
See this discussion:
https://www.taxprotalk.com/forums/viewtopic.php?f=10&t=15614
I suffer from depreciation.
 

#12
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DavidG wrote:Not true. Recently we prepared a 2018 calendar year return, then a short 2019 return on 2018 forms. Both tax returns were successfully efiled.


Perhaps I'm thinking of the extension. Or perhaps they updated it.

The last time I did one was 2-3 years ago...

Either way, what I described is exactly happened to me while working at a previous firm. And we were using Prosystems, not a cheap budget software.
 

#13
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Maybe that's the reason, thanks Howard.
 

#14
makbo  
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DavidG wrote:Not true. Recently we prepared a 2018 calendar year return, then a short 2019 return on 2018 forms. Both tax returns were successfully efiled.

Agree. I just successfully efiled a short year 2019 Form 1041 after filing the 2018 return earlier this year. UltraTax handled it with no trouble, they even have a help page specifically for this task.
 

#15
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LW25 wrote:I have this come up all the time.

When the 2019 forms are not yet available, we take the 2018 forms and change all the dates on the forms to "2019" using an advanced version of Adobe Acrobat -- and I'm talking about EVERY place on the forms where the "2018" appears. And, of course, write in the short period at the top of page 1 in the applicable space. File the 2019 return manually. About 99% of the time, there's no problem with the IRS processing the return.


I wouldn't do that. It opens too many opportunities to make a mistake, in my mind, and I have better uses for my time (like taking a nap, or alphabetizing my socks)

I remember a story written here or at the old TaxAlmanac about tax prep in days gone by. Back when you would prepare the return and hand it to a secretary to type up, those days. My memory might be a bit off, but a contributor prepared a C corp return and sent it to the secretary to type, and upon review the numbers didn't make sense... and eventually figured out that the secretary didn't have any 1120 blanks left so just used an 1120S, whited-out the S, and then went typing. I can imagine doing that type of mistake with your system.
 


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