My husband and I have a business and have filed a 1065 for some time . We'd like to restructure the business so I am the sole owner ( LLC ) and I employ my husband ( we meet the criteria for my husband to be an employee ) . My question is how my husband's basis in the business is treated during this switch . Do I simply create an LLC for the business with myself as the owner ? Do I file a final 1065 for the two or three months of 2013 that we remained a partnership ? Does the IRS need any other documentation regarding the transfer of basis between spouses ? Thanks in advance for any help .
What you are describing is a dissolution (under state law) and liquidation (under Federal tax law) of the partnerhip, and the formation of a new entity - an LLC. Perhaps under the laws of your state or of some other state you can preserve the state corporate I.D. number of the entity and use it for the new LLC. However, I do not know why that is important unless you have some state license or contracts under the corporate ID number. Your husband's basis is applied against the liquidating distribution of the partnership. Yes you will file a final 1065 for the partnership. The IRS doesn't need any particular information for the transfer between the two of you.
You'll need to select from among the available LLC forming jurisdictions. You'll need to qualify with that jurisdiction's statutes regarding formation. If that state allows partnership conversion you can comply with those provisions. An advantage of a conversion and then subsequent transfer is that partnerships have to have two partners or they are terminated. In contrast LLCs in some states are allowed to be single member entities. Compliance with the tax codes can be researched on the IRS web site. They issue quite a lot of material for do those that like self sufficiency. If you want someone to do more for you, you should consult a tax attorney.
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Real Estate Attorney
You appear to be a very knowledgeable lay person, but I would suggest you get some tax advice from a CPA or tax attorney based on the specifics of your situation.
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