Treatment of Partnership Suspended Losses Upon Dissolution

[peauff]

My client filed their LLC as a partnership in 2020; they could not be considered as a disregarded entity as the husband/wife had joint ownership and the state of LLC organization is not a community property state.  In 2021 they re-organized the LLC with only one member/owner, and submitted form 8832 to request change of entity classification to dis-regarded.  Their 2020 Partnership return had suspended losses not passed through due to basis restrictions.  What happens to these losses in 2021?  Can they be passed through to the LLC owner at 100%, or are they lost? 

[sjrcpa]

Each owner keeps their suspended losses. They can be deducted if and when they have basis.

Maybe the losses of the spouse who is no longer a member move to the sole member. Research required.

[sjrcpa]

Why was 8832 submitted?

Default for a SMLLC is disregarded entity.

[peauff]

For the entity's initial tax year (2020) they filed as a partnership.  Thus the thinking was that we would need to identify why we were filing under a different tax status in 2021, via 8832 disclosure.

[sjrcpa]

I have never done that.

[PhoebeRoberts]

Agreed. The last 1065 gets marked final, which makes the entity unit happy when there's no 1065 the next year.