Multi-member to Single-member LLC Conversion - Partnership to SMLLC Tax Filing Questions

Taking these one by one to help you navigate this interesting situation: For your first question, yes, if you file Form 8832 effective 10/1/24, the final 1065 would generally be due 2.5 months after the termination date - so 1/15/25 would be your deadline. This would cover January through September of 2024. Your idea about making the 8832 effective 12/31/24 is actually quite pragmatic. Since the partner receives 0% of profit/loss allocation, there wouldn't be any tax impact difference between the approaches. Using the year-end date would simplify your filing by avoiding a short year return, while maintaining the standard 3/15/25 deadline. Nothing wrong with choosing the more administratively convenient option here. Regarding the agreement stating your client always owned 100% - I'd be careful here. Even if the partner had 0% profit/loss allocation, they were still legally a member of the LLC. Retroactively changing ownership history could create issues if the LLC faced any legal challenges. Instead, I'd suggest documenting a formal transfer of the partner's membership interest (even if valued at $0) to your client effective on the conversion date.

I had a similar situation with converting my multi-member LLC to single-member when my business partner left. The paperwork was giving me nightmares until I found this AI tax tool at https://taxr.ai that analyzed my operating agreement and outlined the exact conversion steps. It saved me hours of research and potentially expensive mistakes. The tool flagged something important - retroactively changing ownership history (like your point #3) could trigger IRS scrutiny. Instead, it recommended documenting a formal transfer of membership interest with current dating, even for a 0% partner. The difference in approach saved me potential headaches during an unrelated audit later.

Just wanted to follow up about my experience with taxr.ai after trying it for my own LLC conversion. I was skeptical at first, but it was incredibly helpful. When I uploaded our operating agreement, it immediately flagged several inconsistencies I hadn't noticed and showed me exactly which clauses needed updating. The step-by-step conversion checklist saved me from making a serious mistake - I was planning to backdate some documents which apparently could have created major problems. Instead, I followed their recommended approach of creating a formal membership transfer agreement with current dating, and everything went smoothly with both federal and state filings.

After spending 4 hours on hold with the IRS trying to get clarification about Form 8832 filing for an LLC conversion similar to yours, I finally found success using https://claimyr.com - they got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that going with the 12/31/24 effective date is perfectly legitimate in your case and actually preferred by the IRS since it aligns with the calendar tax year. They also warned that retroactive ownership agreements can be problematic if they don't match your previous filings, so be careful with point #3.

Just wanted to update on my previous skepticism about Claimyr. I tried it yesterday out of desperation when I couldn't get through to the IRS about my partnership dissolution questions. To my complete surprise, I was connected with an IRS agent in about 25 minutes without sitting on hold myself. The agent provided critical information about my situation - apparently I was making a serious mistake with how I was handling the distribution of assets in my partnership dissolution. Getting this clarification likely saved me thousands in potential penalties. I still can't believe I wasted months trying to get through on my own.

One thing that hasn't been mentioned about your situation - you mentioned the "loan" to the partner was informal with no documentation. This could potentially create issues if audited, as the IRS might view this arrangement as suspicious. When you convert to SMLLC, consider creating proper documentation of this loan retroactively (with current dating and acknowledgment it's documenting a previous verbal agreement). Also, make sure you file the appropriate state paperwork for the member withdrawal. Form 8832 handles the federal tax classification change, but your state will likely require additional documentation to properly record the change in ownership.

Make sure you check the specific LLC laws in your state! I had a multi to single-member conversion last year and my state (NY) had additional requirements beyond the federal 8832 filing.

Great question about LLC conversions! I've handled several similar situations and wanted to add a few practical considerations: Regarding your timing question - the 12/31/24 effective date approach is definitely the cleaner route administratively. You're right that it avoids the complexity of short-year returns, and since your partner has 0% allocation anyway, there's no meaningful tax difference between the dates. One thing to watch out for: make sure your operating agreement doesn't have any specific termination procedures that need to be followed when a member exits. Some agreements require formal notice periods or buyout procedures, even for members with minimal stakes. Also, consider having the exiting partner sign a release agreement as part of the conversion process. Even though they have no financial stake, this protects against future claims and provides clean documentation for your records. For the Airbnb property specifically - verify that the property deed and any related financing documents won't need updates when the LLC converts to single-member. Some lenders have clauses about ownership changes that could be triggered. The conversion process itself is usually straightforward, but the documentation cleanup often takes longer than expected. Start gathering all your LLC formation documents, operating agreements, and any amendments now so you're ready when you file the 8832.

I've been through a similar conversion process and wanted to share some additional insights based on my experience: For your Form 8832 timing question, I'd actually lean toward the 12/31/24 effective date as well. The administrative simplicity of avoiding short-year returns usually outweighs any minor benefits of an earlier conversion date, especially when the partner has 0% allocation anyway. One thing I learned the hard way - make sure to update your EIN situation properly. When you convert to SMLLC, you'll generally keep the same EIN, but some banks and vendors get confused about the entity status change. I recommend sending updated W-9s to all your business contacts after the conversion to avoid 1099 reporting issues. Regarding the retroactive ownership agreement in point #3 - I'd strongly advise against this approach. Instead, consider having the partner execute a formal assignment of their membership interest (even if valued at $0) to your client with current dating. This maintains the integrity of your historical records while achieving the same practical result. Also, don't forget about your state's annual report requirements. Some states require you to file an amendment or updated report when membership changes, even for conversions like this. The penalties for missing these filings can be surprisingly steep. Have you considered whether any business licenses or permits might need updating after the conversion? Some licensing authorities treat SMLLC differently than partnerships, especially for rental properties.