Filing tax returns for a partnership when members have withdrawn

[mish111]

Hello - very happy to have found this forum! My husband and I formed an LLC with my brother and his wife in April, 2012. My husband, brother and I had been in a different business for 3 years and it went very well. The new LLC did not. As soon as the first disagreement happened (July 2012), my sister-in-law quit and my brother had to quit as well (if he wanted to stay married:)). Their investment in the business was $3,000 and ours $1,000. The agreement was each member owned 1/4 of the business. For 2012, there was an $8,000 net loss. They want their $3,000 back which I am giving them this month. My husband disagrees with giving them the whole thing back since the $4,000 was for education to start our business, and they do still have the knowledge that we paid for. however I want to keep the peace and it's worth more than $3,000 to me. I want to claim the whole loss on my 2012 tax return.

I have talked to the IL Sec of State re: removing them from the LLC and I will take care of that (I realize it should have been done a long time ago).

Question:
Do I need to hire a lawyer?
Taxes: I file my own on turbotax and was planning on filing using Tubotax business so I can do the partnership taxes.
Can I create the Form 1065 to show my husband and I each owning 50% and my brother and his wife owning 0% so that they have no tax consequences?

Thank you for pointing me in the right direction. Unfortunately, as you hear a lot, this has caused many problems in the family. I think once they get their money back though, thing may improve.

[vangogh]

Hi mish. Sorry no one responded to your thread. Sometimes they do slip past us. Sorry to hear about the problems in the family. It's one of the risks of being in business with family. I think you're handling things the right way. Your husband is technically correct in the sense of not needing to pay them back everything, but $3k isn't a lot to keep peace in the family. The peace is worth more.

I'm not an expert on the legal and tax information, but hopefully my reply will get someone who is an expert to see this thread.

I doubt you need a lawyer, emphasis on the word need, but if you can afford one it's probably worthwhile to make sure all the i's are dotted and the t's crossed. If you feel comfortable filling out the paperwork though you can do it yourself.

If this is the first year filing taxes, I would think you can do as planned and list yourself and your husband as 50% owners each and not mention your brother and sister-in-law. Don't hold me to that, since I'm not an expert, but I would think it's ok assuming this is the first time the business is filing.

Hopefully someone who can really answer sees this now. Sorry again it took so long to get a response.

[Evan]

I'd recommend that you not use TurboTax and pay for a professional to prepare this return. The amounts to give back are really dependent on what you decided to "buy" them out for, and their respective income/loss is also based on another formula. If you're not knowledgeable in these areas, it truly is best left to a professional.