Tax Law (Questions About Taxes)/Shutting down llc


I am a member of an Arizona llc with my wife that is taxed as a partnership. This partnership had its only asset some land foreclosed on in 2011. The amount deemed as the sales price from the foreclosure was less than the loan and rather than send a 1099 c and cancel the remaining debt they pursued and received a judgment Against the llc. The debt is not collectible as the llc has no assets. I want to shut down the llc but am not sure what I would do on the tax return. Can you file a final return if the llc is administratively closed if there is still a debt? If I can file a final return does the llc report cod for the debt? I assume you can't just file a final return with a debt remaining? In 2011 when I filed the return there was a loss from sale of the property that I could not claim on my personal return due to insufficient basis inthe llc. This amount would offset any cod gain passed through to my personal return and I would not owe any tax  is I have enough un used loss due to insufficient basis from the 2011 return?

Is your LLC a pass through entity? Most are.

Do you realize that the debt, when deemed "Bad Debt" by the lender, will be attributed to the LLC and therefore to you as income, and taxable?

If you close the LLC then the debt goes directly to you, if you don't close it, it will go to you indirectly.

I don't know how much were talking about in debt, I'll give an example for illustration purposes.

The outstanding debt is $100,000. And you are married and between the two of you, your total family income is $75,000 a year. (That puts any new income in the 25% bracket until it gets to $146,000 total personal revenue). (if your personal revenue start higher, then the taxes go higher

You would be attributed $100,000 of new income to put on your personal tax return. The first $70,000 of which is taxed at 25%, and the last $30,000 is taxes at 28%.

You will owe about $26,000 in Additional Federal Taxes in 2014. You live in AZ so your personal income tax rate is variable also but at the example numbers, you'd be 4.24 to 4.54%.

You might want to negotiate some partial payment to keep them from claiming it as Bed Debt. They may not be willing to do that. They already spent more money litigating it. If it is significant, then it would be worth looking at ways to mitigate this problem.

I don't know the specifics, I just gave you some unrelated examples. Call me and we can discuss your specific situation.

Richard Fritzler

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Richard Fritzler


Specializing in Business and Corporate taxation. Comparing the advantages and requirements of different business entities, such as Sub-S Corporations, LLC`s, Partnerships (Both Limited and General), Doing Business as a Sole Proprietor, or Using a C-Corporation. Issues regarding K-1 distributions, 1040, schedule C, 1120, 1120s. Are you considering domiciling a Corporation in a low tax state? I can review the benefits and misinformation that exists.


I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

National Small Business Owners Association.
Contributing author to "The Corporate Standard Newsletter".

Contributing author to "The Corporate Standard Newsletter".

I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

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