Multi-member LLC (filed 1065) converts to SMLLC owned by S-Corp

[kelly6]

Hello, 

I have a new client that came to me for tax help.

I think I know the correct path here - but would value some input.

1) when a multi-member LLC converts to a SMLLC - do you need to file a short year 1065 as final return? 

2) When SMLLC is owned by a corporation - is there a form similar to a Schedule C?  Or do I just create a consolidated return?  The LLC had previously been paying the S-Corp guaranteed payments - but once it becomes an SMLLC - I assume those need to be netted - so both the income and expense goes away - and all consolidated onto the S-Corp return?

3) If we need to file a late 1065 short year return - How do we best request any penalty relief if her prior accountant essentially lied to her that they were working on things when they were not?  Is it possible to include reference to this on the tax return? 

Thank you, 

[sjrcpa]

1) Yes

2) You "consolidate" the corporate and SMLLC activity for the 1120.

3) You could include a statement with the return but no one would read it. Save it for the letter you will send requesting abatement of the penalty for reasonable cause, after IRS sends the penalty notice.

[rbynaker]

I agree with SJR.  A couple other thoughts:

A) Look at partnership liquidation rules, there may be some quirky things with outside basis allocations that you need to figure out.

B) You'll also need to consider the QBI reporting rules.

Rick