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1065 partnership sale

Brainstrom
Level 3

Clients sold the business. Sold 720,000.00 cash payout 510,000.00 split between two partners. Installment sale for the remaining 210,000.00. Each partner received a 1099-S for the full 720,000.00 and each partner received an installment sale agreement for the 210,000.00. Not sure what to do about this, it seems like each should have received a 1099-s for 360,000.00 and each should have received an installment sale agreement for 105,000.00. Both documents above in their social security number.

If I don't record the 720,000.00 and the 210,000.00 on each partner they will get a notice. Any help would be appreciated.

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22 Comments 22
IRonMaN
Level 15

What all did they actually sell?


Ukraine - hang in there
Brainstrom
Level 3

They sold the business, a/P, A/r, and inventory. It is on the K-1's line 20P. I am recording the installment sell on the 1040 individuals, but the installment sell through the Title company says the are both getting 210,000.00, which is incorrect.

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Very tangled-up info...

1.  Clients sold the business. Sold 720,000.00 cash payout 510,000.00 split between two partners. Installment sale for the remaining 210,000.00.

2.  Each partner received a 1099-S for the full 720,000.00 and each partner received an installment sale agreement for the 210,000.00.

2. is contradictory to 1.   How about requesting a correction for the 1099-S and "Installment sale agreement" issuer/preparer???  

As @abctax55  pointed out, was the 1099-S even appropriate?

If the Installment sale agreement was prepared in the name of the TWO partners as the selling party, and each received a copy, it might not be incorrect.  If the copy received by each partner was in the name of the partner, how about the payment amounts stated on the agreement.  Was it based on the total ($210,000)?  If so, did the buyer pay  (or has been paying) the doubled-up amounts?

 

3.  1099S issued under SSN, for the full amount for each partner.

Did you review the sale/purchase agreement?  Who exactly was the selling party - the partnership or the partners? 

 

4.  They sold the business, a/P, A/r, and inventory.

Bear in mind that inventory is not eligible for the installment method.  (IRS Pub 537: The sale of inventories of personal property can’t be reported on the installment method. All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years.)

Neither is the partnership interest that was attributable to unrealized receivables.  (For example, see Mingo, T.C. Memo 2013-149)

Who buys A/P?  I have some for sale.

 

5.  It is on the K-1's line 20P.

What was the "it" that was on the K-1 Line 20P.  How much?  And why?  Who prepared the Form 1065?  Has the partnership return been filed?  

 

Key general point: As in any other tax area, make sure to have all the necessary information in reporting a transaction.


I come here for kudos and IRonMaN's jokes.
abctax55
Level 15

I believe F 1099-S is only used for real estate sales.  

You didn't list any real estate in the items sold.

And if the *partnership* sold the assets, why were SSN's used?

Either the Title Co is wrong, or there are some missing facts that the Title Co didn't know, or we don't know.

Any chance there was a drop/swap scenario?  

 


#StandWithUkraine
Brainstrom
Level 3

There were several good ??'s for me to analyze to figure out how to handle this transaction. I am merely unsure on how to record the transaction at hand. Hoping to get some insight while learning.

The sales agreement is selling the Retail grocery business to the two owners. As stated above the purchase price is 720,0000.00, cash paid 510,000.00 and the remaining amount is in an installment sale of 210,000.00. My problem is they both received a 1099-S for the sale of real estate in the amount of 720,000.00. Each have an installment sale set up through the title company for 210,000.00. This doubles everything. I will reach out to the title company and see if I can come up with something.

I did not prepare the 1065 partnership return which has been e filed. These clients brought me their taxes to process with the K-1 from the above retail grocery business. On the K-1 line 20 P it shows:

Date acquired, date sold, selling price (720,000.00), gross profit, gross profit ratio, contract less money received (510,000.00), installment sale income, deferred obligation (210,000.00), partners percentage 50%, partners share of deferred obligation 105,000.00. Possibly if someone can tell me where to put K-1 Line 20P information, that will clear things up on paper.

Thank you for any additional input

 

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abctax55
Level 15

 selling the Retail grocery business to the two owners

This statement makes NO sense.  They are selling it to themselves????

And you still haven't answered if there's REAL ESTATE involved.  That's what generates a F 1099-S.

(edit... NOW I see that the RE was 'finally' answered, in the minutiae of one response)

 


#StandWithUkraine
Brainstrom
Level 3

I am so sorry to upset you!!!! Sellers are the two partners, not the Business. That is why the 1099-S statements are in their social security numbers and not the EIN for the business.

Real Estate Sale, Retail grocery business.

Not looking for rude comments. Looking for some clarification on this situation. I thought this was a Help site for other ProSeries professionals who may have some insight that I could learn from.

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dkh
Level 14

To get the help you need can you clarify...

1) How many partners were there in the Partnership?  Just two?

2) Are they just selling off a portion of the Partnership business (retail grocery) to themselves and the Partnership still has other business that will continue?

3)Is this a new client for you? Why didn't the person that prepared the 1065 return do the individual returns?   (I only ask because I'm suspicious of clients that spread tax reporting to multiple preparers)

@dkh , Perhaps my brain is wired differently.  My thought was rather:

To get the help you need can you clarify...

1)  Who was upset?

2)  Why were you expecting rude comments? 

 

In my earlier post, I said: 

Key general point: As in any other tax area, make sure to have all the necessary information in reporting a transaction.

Before it was: They sold the business, a/P, A/r, and inventory.

This morning, this was added: Real Estate Sale, Retail grocery business.

So, here it is, from the Agatha-Christie-fan side of me:

Once upon a time, A and B formed a partnership AB Prominent Partners ABPP.  Annually ABPP filed Form 1065 and issued K-1's to A and B.

A and B were grocers and ran the grocery under a fictitious name A and B Great Grocers, ABGG, which was operated under the partnership ABPP.

A and B owned the building 50/50 in their names.  They used the building to operate the partnership ABPP that ran the Grocery business ABGG.

The business was sold.  The preparer for ABPP prepared the Form 1065 and put the installment sale (proceeds of $720K) on Schedule K, and the respective amounts were allocated to A and B on Schedule K-1's Line 20.   A (or B) provided the K-1 to @Brainstrom .  

Upon the sale, Form 1099s were issued to A and to B, for the "full amount" of $720K each.

At the same time, we just found out there was a sale of the building.

ASSUMING EVERYTHING (- except **partially** on Form 1065 - ) was prepared correctly by the third parties, here's my wild guess:

The sale was for $2.16 million.  $1.44 million for the building; $720K for the grocery business ABGG.  

$720K was A's 50% share of the building sale.  1099-S issued to A

$720K was B's 50% share of the building sale.   1099-S issued to B.

$720K was for the "A/R A/P Inventory and the business" of ABGG. 

The cash payment was $1.53 Million, allocated $510K to each of the above 1/3  shares.

ABPP's tax preparer properly included the 720K as sale proceeds got the installment sale  of the business ABGG on the partnership return for ABPP - but erroneously included it all (thus my comment of "**partially**" above") as installment sale and allocated the full amount to the partners A and B, on Line 20, Sch K-1, without (correctly) allocating to AR and inventory etc.

This would explain all the convoluted info. 

Totally my speculation: Because the amount for each 1/3 portion ($720K) was identical, @Brainstrom got the $720K's all mixed up,

Here comes the rudeness:

GET THE SALE AGREEMENT and READ IT!!!

 


I come here for kudos and IRonMaN's jokes.
Brainstrom
Level 3

Thanks, I have read the sales agreement. Total price 720,000.00

I was asked if this was a Real Estate sell, hence the for 1099-S. That was clarification.

Wish I was as SMART as you!! Just learning, have a great day

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RE: Wish I was as SMART as you!! 

 

You forgot to use the sarcasm font....  One who always laughs upon reading @IRonMaN 's jokes can't really be that smart.  Ask ironman...

 

 


I come here for kudos and IRonMaN's jokes.
qbteachmt
Level 15

"I have read the sales agreement."

Which sales agreement? There should be Two:

Real Estate between some parties, and we don't know who sold real estate.

Business assets, liability, inventory, AR, AP, broken out, and between the Partnership as seller and some other party.

"Total price 720,000.00"

Total price, for what?

If you read this topic from the beginning, you would review how certain sales cannot be sold by the partnership, others cannot be sold by the individuals, other components do not qualify for being handled as an installment sale (and what you seem to factually have is two individuals acting as lenders, perhaps).

You need to identify each component, break down who was the rightful owner, then confirm if any associated paperwork reflects these facts or was prepared in error.

No one here can even confirm if the 1065 has any of this activity on it correctly. The mistakes may have been made before anything was handed to you.

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"Level Up" is a gaming function, not a real life function.
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qbteachmt
Level 15

Oh, one more assumption = that the topic's title is not the facts. You stated "1065 partnership sale" but so far, nothing here explains they sold their Partnership. Is that 1065 marked as final? Is the LLC now owned by others?

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"Level Up" is a gaming function, not a real life function.
qbteachmt
Level 15

"Not looking for rude comments."

And no one has made any. So far, things are intertwined with a confusing perspective.

Either the Partnership, as its own entity, owned the real estate and sold the building. or, the partnership, as its own entity, never owned the real estate, and only operated the Business held there. That's the issue surrounding the 1099-S. The building, if owned and sold by the Partnership, would have been part of the 1065. That would make any 1099-S with SSN on it, an incorrect document.

The partners would not likely have sold "the business" and inventory, AR, AP, etc. The Business was a Partnership, so the Partnership should have sold the Business operations, assets, liability, inventory, AR, AP. That means you account for none of this on the personal 1040 filings.

No one can help without the details they are asking about. You wanted some help, but only you know these details or you know where to ask to get these missing details. If you don't have the patience to ask and participate over an internet community discussion forum format, then you might try to find local mentoring on this.

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"Level Up" is a gaming function, not a real life function.
abctax55
Level 15

@qbteachmt  - A M E N !!


#StandWithUkraine
Brainstrom
Level 3

Thank you for your response! It seem that the purchase and sales agreement has caused a lot of confusion. Yes I was not sure what details to give in my ???

Have a great day!!

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abctax55
Level 15

Not looking for rude comments

No one is being 'rude'.  But personally, I don't like fishing (as in trying to drag the necessary info out of a poster).

So - buh by.  And good luck.


#StandWithUkraine
JRC
Level 8

@Brainstrom  I find it helpful to first contact the preparer of the Business Return (K1) to verify the information you have received from the Client. Many times the Client has no idea on what actually transpired and will most likely NOT give you the appropriate forms (documents) to process their returns correctly. Just my thoughts on this.

Take care.

IRonMaN
Level 15

Someone actually laughs at my jokes?

In summation to this whole mess of rudeness and smartness, the answers provided here are only as good as the information provided (I think I have mentioned that a time or two here).  Folks need to understand what their problem really is before they ask folks here to solve it.  There are a few half baked mind readers but no miracle workers hanging out here.


Ukraine - hang in there

RE: Someone actually laughs at my jokes?

Yes, I few of us do.  Laugh at, as in (1.) to be amused by.

Others also do, as in (2.) to make fun of; ridicule; deride.

2 meanings per Mr. Webster. Some actually do both....

Thus, safe for you to say 120% of folks laugh at your jokes...


I come here for kudos and IRonMaN's jokes.

Meant to say "A few of us do".


I come here for kudos and IRonMaN's jokes.
IRonMaN
Level 15

It's good to hear that all of that hard work by Sven, Ole, and Paddy didn't go to waste.  I wonder if Paddy has ever done a DNA test to see if he is related to Sven or Ole.


Ukraine - hang in there
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