k-1 capital account for partner who left the llc

[comradesteve]

We have a partner who left the company (an LLC) and is being paid out his capital account over three years. Should I file a k-1 for the remaining three years reflecting the payments made against their capital account until it reaches zero? Their ownership interest is 0% since their departure, so their k-1 would show 0% share of p/l.

[qbteachmt]

In other words, the leaving partner left their capital as on loan to the LLC, and is being paid over time? You cannot buy a partner out with their own funds. Who is getting their share of the partnership?

[comradesteve]

Correct, the partner left their capital on as a loan. The two remaining partners went from 33.3% to 50% owners.

[qbteachmt]

Lenders don't get a K-1.

[comradesteve]

So that partner's k-1 should show the total remaining capital account amount in distributions which would zero out their k-1 and any remaining debt would be considered accounts payable (line 15) or on a different line on the 1065?

Thanks for your help!

[qbteachmt]

Loans and AP are not the same. AP is for goods and services.

You seem to have two partners that personally bought out the other partner. Meanwhile, that leaving partner agreed to accept a Note Payable instead of getting their equity share of the partnership all at once. Their final year of participation has nothing to do with their final payoff.