Partner passes away, can I extend

[lbones]

I have been informed that one partner in a two partner partnership passed away on August 1st of this year.  The remaining partner converted to a sole on October 3rd.  Since the conversion was in October can I extend the short year return or is the partnership terminated upon death which would entail penalties for not filing by the 15th day of the third month.  

[jeffmcpa2010]

Sounds like there may be more information to collect. Just because the remaining partner started operating as a proprietorship in October, may or may-not mean that the partnership had been dissolved at that time. The Estate of the deceased partner may still have interest in some of the partnership assets, that the remaining partner is now using, if so might the partnership still exist if some of its assets have not yet been formally or legally distributed?

Just thinking of questions I would be asking.

[George4Tacks]

Partnership is terminated on death of partner. You can likely get a one time penalty abatement for late filing. https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver

[TaxGuyBill]

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@George4Tacks wrote:

Partnership is terminated on death of partner.

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Not necessarily.  When the Partner died, their partnership interest may have been transferred to their Estate (or possibly to a beneficiary).  So the Partnership may have continued for a while, but with a different partner (such as the Estate).

[lbones]

Spoke to the deceased partners wife today.  She has no interest in the business and is in some talks with the remaining partner as to compensation for the assets the partnership has accumulated.  So it seems to me that the partnership is still in force until the distribution of the assets is completed.  Am I wrong in that assumption?

My other concern is, when the remaining partner converted to a sole, the same EIN was used.  Wouldn't that be an issue when filing?

[sjrcpa]

"it seems to me that the partnership is still in force"

"when the remaining partner converted to a sole"

It can't be both.

Perhaps the surviving partner changed the name after the death of the other partner?

[sjrcpa]

Sounds to me like there is still a partnership. The partners are now surviving partner and deceased partner's estate.

[lbones]

That's the problem.  I believe, and had told them that the partnership is still in force and the comeback was the county clerk's office told them that the partnership was terminated and changed the paperwork to a sole and kept the same business name and EIN.  So everything is going to be in a state of flux come tax time.  

[sjrcpa]

How did the county clerk get involved? Probate?

And I'm pretty sure a clerk can't just change a partnership to a sole proprietorship. Someone on the client end had to sign off.

[lbones]

This is the note that I received from the client.  Trying to get them in here for a face to face but apparently the remaining partner had an accident requiring surgery.

We were told by Albany County that the partnership upon death ended. Bill went down to the county clerk’s office and amended the paperwork to remove Kelly’s name. Also, Kelly did not have a will so there was no directive as to his portion of the business. Bill is working with Kelly’s wife Patti as he thinks that the appropriate thing to do is purchase Kelly’s interest in the equipment as Patti stated she had no interest in the business. 

Also, the EIN never changed for the business. 

[TaxGuyBill · Accepted solution]

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@lbones wrote:

We were told by Albany County that the partnership upon death ended. Bill went down to the county clerk’s office and amended the paperwork to remove Kelly’s name.

Also, Kelly did not have a will so there was no directive as to his portion of the business. Bill is working with Kelly’s wife Patti as he thinks that the appropriate thing to do is purchase Kelly’s interest in the equipment as Patti stated she had no interest in the business. 

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How it is registered with the county or state has very little to do with how it is treated on the Federal tax return.  If more than one person owns the business (even if the county or state thinks otherwise), it is still a Partnership.

In most cases, no directive means any solely owned property belongs to the Estate (or possibly directly to the spouse).  It looks like Bill is trying to "purchase Kelly's interest", which means Bill does not currently own the entire business yet.  It is still a Partnership, regardless of what they reported to the county or state.

[lbones]

Thank you this makes perfect sense to me now.  I want to thank you and all of the other members that took some time to help me out with this.