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I have a client LLC who mid year had a shareholder surrender is shares back to the company and subsequently reissued the shares to presidents wife. How does this impact the K-1's?

Level 1

Original minority shareholder surrendered his 20% shares on 09/22/2023 and on 09/23/2023 the company reissued the shares to Presidents wife who did not have any shares up to that point. In ProConnect, how should I report the transfer?

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1 Comment 1
Level 8

I am assuming that your LLC is being taxed as an S-corp.

If that is the case then this is all covered under IRC 1377.

The general rule for shares transferred during they year is that attributes of the S-corp will be prorated on a calendar day basis. So the original shareholder would get 264 / 365 of 20% the income of the S-corp and the succeeding shareholder will get 101/365 of 20% of the income of the S-corp.

However, there is an election to close the S-corps Books on the date of transfer and report the actual results for the periods 1/1 - 9/22 and 9/22 - 12/31 to the 20% shareholders.  This requires the approval of all shareholders and the corporation.


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