LLC Dissolution, reporting on personal tax return

[ptax255]

Hi, what's the best way to report this and which forms:

Client formed LLC with another person in 2020. They had start up costs of ~$10K

LLC was dissolved, and my client received $45K to give away IP rights.

In the process had some legal consultation fees paid. 

All this happened within one year. 

Thanks!

[IRonMaN]

1065

[ptax255]

I should clarify a few things:

- My client received $45K from the other member after LLC was dissolved.

- Legal fees were paid by him.

There was no 1065 filed for the LLC.

[sjrcpa]

Jeff's point is that a 1065 should be filed.

Did the LLC sell its assets and then distribute money to the members?

Or did your client sell his interest in the LLC to the other member?

[ptax255]

The LLC was dissolved. There were no assets. The other member paid my client $45K to give up any rights in regards to the software they created. The other member created a new LLC.

[sjrcpa]

"There were no assets"  Then why did your client receive $45K for his rights to the software (an asset)?

Your client has a sale of his interest in the LLC for $45K. This is a deemed sale of his share of the LLC's assets.

There still should be a 1065 from the beginning of the year until the date your client was bought out/date LLC dissolved.

[ptax255]

Would his basis be the cash he put in for the start-up costs or the FMV of his share of the software at the date of transfer?

[ptax255]

If it makes any difference the timing was as follows:

- August 2020 the LLC was dissolved

- Other member created new LLC. My client was going to sue him for IP rights.

- The $45K was the settlement in October.

[sjrcpa]

Basis in a partnership = cash contributed plus your share of income less your share of deductions.

Were there liabilities?