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My TX LLC changed entity classification (IRS approved) from

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corporation to disregarded entity as...
My TX LLC changed entity classification (IRS approved) from corporation to disregarded entity as of 1/1/2012. What are the tax related steps that need to be taken a) for the 2011 1120 (indicate final return?) , b) for the disposition of the 1 asset the company owned (a computer) , c) for me as the sole owner of the LLC d)??
Submitted: 5 years ago.Category: Tax
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3/1/2012
Tax Professional: jgordosea, Enrolled Agent replied 5 years ago
jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
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Greetings,

 

Indeed, a final return should be completed for the period ending 12/31/2011.

 

That final return should indicate zero on all of the balance sheet items including disposition either by sale, trashing or distribution to the shareholder of the assets.

 

You did not mention the state in which you were incorporated; but notifying the department of state is highly advisable. Some states, like California, will continue to charge the corporation unless notification is made and others will simply dissolve the corporation when the annual fee is not paid, like Florida; but it still is proper to file the notice of dissolution.

 

As the sole owner of the LLC you may need to change or file new form W-9 so that customers or clients have the correct taxpayer identification number and entity status.

 

As the sole owner of the LLC you will now file the proper schedule on your individual return for the activity: Schedule C for business, Schedule E for rental, Schedule F for farming, etc.

 

Please ask if you need clarification.

Thank you.

 

 

 

 

 

 

 

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Customer reply replied 5 years ago

Thank you for the response. I have a couple follow-up clarification items.

 

The LLC was formed in Texas.

 

From what I understand, I don't need a new taxID since the tax ID was issued to the LLC and the LLC isn't going away. It is only changing it's federal tax classification. Is this correct?

 

How would I indicate that the computer was "distributed" to the shareholder (me)?

 

(a) on the final 1120 for 2011

and then

(b) how to I show this on my personal 1040?

Thank you.

 

Tax Professional: jgordosea, Enrolled Agent replied 5 years ago

Greetings,

 

I agree you do not need a new EIN.

See https://sa2.www4.irs.gov/modiein/individual/help/help-toc.jsp#16

 

Although you have not indicated if the Corporation had an S election in place, the computer will be similar to cash distributions and the fair market value will be the distributed amount (presuming the computer was purchased by the corporation).

 

Treatment of distribution of property is the same whether cash or not on the individual return.

 

For more information see the discussion on liquidating distributions at

http://www.irs.gov/publications/p17/ch08.html#en_US_2011_publink1000171610

and http://www.irs.gov/publications/p550/ch01.html#en_US_2011_publink100010095

These distributions are, at least in part, one form of a return of capital.

You may have gain or loss on the liquidation depending on the basis in stock of the corporation. Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock. After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain.

 

Please ask if you need more help.

Thank you.

 

 

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