I understand if an LLC member is being taxed as a partnership and sells more than 50% interest in a 12 month period the LLC would technically terminate.

Would an LLC that is being taxed as an S-Corp also technically terminate if one member sold more than 50% interest?

I understand if an LLC member is being taxed as a partnership and sells more than 50% interest in a 12 month period the LLC would technically terminate.==.Correct; the terms "dissolution" and "termination" are used interchangeably but from a legal point of view, these are two different phases in the break up of a partnership; Under state and federal laws, the termination of a partnership occurs when it ceases operations. Additionally, the IRS regards a partnership as having been terminated if more than 50% of its assets , interest, capital and profits is sold or exchanged ,are sold or disbursed within a 12-month period.


Would an LLC that is being taxed as an S-Corp also technically terminate if one member sold more than 50% interest?====>> asfaras I know NOT necessarily more than 50% however, An S corp election may be terminated aslongas there is a transfer of any percentage of stock to an ineligible shareholder, such as a partnership, a corporation, an ineligible trust, or a nonresident alien OR Any combination of shareholders who hold at least 50 % of the outstanding stock must agree to terminate S-corp status. If a business has a shareholder who owns 56 % of the outstanding stock, she can compel the business to terminate its S-corp status.

Thank you so much for that information and I appreciate your taking the time to assist my understanding. The distinction between 50% and ?more than 50%? is relevant in this situation and every correction has helped and has been a break through. Then immediately poses more questions. Could I bother you and press farther? I might be able to break it down with more clarity now, but no promises on that and I might break the limit of characters allowed here at asktaxguru.com. Both literally and figuratively. Advance apologies if multiple posts are needed.

We would like to accomplish three things and need some guidance on structure to accomplish them or if it's even possible.

1. We want to begin treating an MMLLC through 12/31/2015 - as an S-Corp beginning 01/01/2016, and have been granted the election to do so.

2. We do NOT under any circumstance want the EIN to change.

3. We want 50% interest in the company to transfer from one member to the other for $42,000.00 [ $30,000 partners capital account and $12,000 Section 1231 L/T capital gain].

Purchasing partner will assume all liabilities [$54,500] which is the last of the original loan taken to purchase the original goodwill in 2012 and is being amortized over 15yrs, if that matters in the equation. No hot assets.
Questions:

1. What year should the sale of goodwill take place? Should it be ?exchanged? in 2015 and the selling partner never makes it into the S-Corp? other than being a $42,000 liability on the balance sheet because that's when the $42,000 is paid [2016]? Isn't that ?technically? a technical termination?

One concern I have is that although the technical termination will not cause a new EIN, - would the S-Corp election on a suddenly SMLLC 12/31/2015, cause the LLC to now be ineligible for S-Corp status on 01/01/2016 without a new EIN? Or do both causes of the dissolution qualify the LLC for S-Corp treatment in 2016? I'm lost on what approach to take and think I'm over analyzing this all. Until I feel like I'm just playing a nutshell game. Is there anything disqualify S-Corp status with either approach?

It seems like two situations are clashing here. A) The 2015 LLC Form 1065 must be dissolved on 12/31/2015 due to the S-Corp election AND - B) If the partner sells 50% all at once on 12/31/2015 this triggers a technical termination that requires the partnership being dissolved. Both having the same end result? Different cause, same affect.

And if so would I check the technical termination box, since the end of the partnership actually has two causes with the same affect? Without having to prepare a short year return for the technical termination since the date the company terminated was 12/31/2015?

Then just carry on as a 1 owner S-Corp beginning 01/01/2016?

OR ? We deal with one thing at a time. Do a dissolution of the LLC on 12/31/2015 due to the S-Corp election and do not trigger technical termination at all in 2015? Contribute all assets and liabilities to the S-Corp on 01/01/2016, and the goodwill be sold on 01/02/2016 with the $42,000 being paid in the same year [2016]. Because by having the goodwill sold in 2016 brings the selling partner into the S-Corp and at that point S-Corp doesn't have the same 50% or more change in ownership technical termination requirements. Although the S-Corp could technically terminate for other reasons as you have warned it wouldn't terminate due to the 50% or more rule as that doesn't apply to an S-Corp?

2. What should the last day of the year 2015 look like for the LLC partnership to dissolve the partnership without dissolving the LLC?

All assets, all liabilities, all capital accounts to zero on 12/31/2015 and contribute all assets, all liabilities and all capital accounts to the S-Corp 01/01/2016?

Or

All assets, all liabilities, all capital accounts to zero and contribute all assets, all liabilities, and one partners capital account [moving the selling partners capital account to other liability] to S-Corp 01/01/2016 ?
3. And what does the first day of the year look like to the LLC S-Corp?

All assets, all liabilities, all capital accounts contributed on Schedule M-2, beginning balance on S-Corp Balance sheet zero 01/01/2016?

OR
Keep old account balances immediately prior to dissolution and transfer those numbers directly to beginning balance on the S-Corp 2016 Balance sheet?

Is this just a presentation thing, since all accounts at the end of 2016 will balance no matter which approach is taken and checking the ?Final Return? box while Amending 2015 will satisfy the IRS dissolution requirements regarding S-Corp election and/or technical termination?

Given all of that...could you be so kind as to put this very tired, involuntary, amateur, and heartbroken estate planner out of her misery? If it would be easier to respond with the Sesame St. version of ?If this were my mess I would ...A., B., C.,..[A is not allowed to be ?get an attorney and CPA?] ?and assist me to organize this all so it finally has a direction that isn't circular - I would be so grateful. We are counting on making the attorney and CPA visits as swift as possible, but do have some decisions to make, books to get closed and we seem stuck at the pre-planning the final plan before going forward.

Thank you so much for that information and I appreciate your taking the time to assist my understanding. The distinction between 50% and ?more than 50%? is relevant in this situation and every correction has helped and has been a break through. Then immediately poses more questions. Could I bother you and press farther? I might be able to break it down with more clarity now, but no promises on that and I might break the limit of characters allowed here at asktaxguru.com. Both literally and figuratively. Advance apologies if multiple posts are needed.

We would like to accomplish three things and need some guidance on structure to accomplish them or if it's even possible.

1. We want to begin treating an MMLLC through 12/31/2015 - as an S-Corp beginning 01/01/2016, and have been granted the election to do so.

2. We do NOT under any circumstance want the EIN to change.

3. We want 50% interest in the company to transfer from one member to the other for $42,000.00 [ $30,000 partners capital account and $12,000 Section 1231 L/T capital gain].

Purchasing partner will assume all liabilities [$54,500] which is the last of the original loan taken to purchase the original goodwill in 2012 and is being amortized over 15yrs, if that matters in the equation. No hot assets.
Questions:

1. What year should the sale of goodwill take place to simplify this process? Should it be ?exchanged? in 2015 and the selling partner never makes it into the S-Corp? other than being a $42,000 liability on the balance sheet because that's when the $42,000 is paid [2016]? Isn't that ?technically? a technical termination?

I can't decide the ?which is it? angle. Is it a paper dissolution due to being granted S-Corp treatment? Or is a technical termination due to sale of 50% more of the goodwill? Or is it both? And does it matter because neither would disqualify S-Corp treatemnt.

One concern I have is that although the technical termination will not cause a new EIN, - would the S-Corp election on a suddenly SMLLC 12/31/2015, cause the LLC to now be ineligible for S-Corp status on 01/01/2016 without a new EIN? Or do both causes of the dissolution qualify the LLC for S-Corp treatment in 2016? I'm lost on what approach to take and think I'm over analyzing this all. Until I feel like I'm just playing a nutshell game. Is there anything disqualify S-Corp status with either approach?

It seems like two situations are clashing here. A) The 2015 LLC Form 1065 must be dissolved on 12/31/2015 due to the S-Corp election AND - B) If the partner sells 50% all at once on 12/31/2015 this triggers a technical termination that requires the partnership being dissolved. Both having the same end result? Different cause, same affect.

And if so would I check the technical termination box, since the end of the partnership actually has two causes with the same affect? Without having to prepare a short year return for the technical termination since the date the company terminated was 12/31/2015?

Then just carry on as a 1 owner S-Corp beginning 01/01/2016?

OR ? We deal with one thing at a time. Do a dissolution of the LLC on 12/31/2015 due to the S-Corp election and do not trigger technical termination at all in 2015? Contribute all assets and liabilities to the S-Corp on 01/01/2016, and the goodwill be sold on 01/02/2016 with the $42,000 being paid in the same year [2016]. Because by having the goodwill sold in 2016 brings the selling partner into the S-Corp and at that point S-Corp doesn't have the same 50% or more change in ownership technical termination requirements. Although the S-Corp could technically terminate for other reasons as you have warned it wouldn't terminate due to the 50% or more rule as that doesn't apply to an S-Corp?

2. What should the last day of the year 2015 look like for the LLC partnership to dissolve the partnership without dissolving the LLC?

All assets, all liabilities, all capital accounts to zero on 12/31/2015 and contribute all assets, all liabilities and all capital accounts to the S-Corp 01/01/2016?

Or

All assets, all liabilities, all capital accounts to zero and contribute all assets, all liabilities, and one partners capital account [moving the selling partners capital account to other liability] to S-Corp 01/01/2016 ?
3. And what does the first day of the year look like to the LLC S-Corp?

All assets, all liabilities, all capital accounts contributed on Schedule M-2, beginning balance on S-Corp Balance sheet zero 01/01/2016?

OR
Keep old account balances immediately prior to dissolution and transfer those numbers directly to beginning balance on the S-Corp 2016 Balance sheet?

Is this just a presentation thing, since all accounts at the end of 2016 will balance no matter which approach is taken and checking the ?Final Return? box while Amending 2015 will satisfy the IRS dissolution requirements regarding S-Corp election and/or technical termination?

Given all of that...could you be so kind as to put this very tired, involuntary, amateur estate planner out of her misery? If it would be easier to respond with the Sesame St. version of ?If this were my mess I would ...A., B., C.,..[A is not allowed to be ?get an attorney and CPA?] ?and assist me to organize this all so it finally has a direction that isn't circular - I would be so grateful. We are counting on making the attorney and CPA visits as swift as possible, but do have some decisions to make and books to get closed for the company before taking that important and final step.