r/technicaltax

A Delaware LLC had two members from Jan 1, 2025 until June 2025. In June 2025, one member sold his full interest to the other member, so the LLC became a single-member LLC for the rest of 2025. No corporate tax election was made.

For federal tax purposes, should the LLC file a final Form 1065 ending on the date it became single-member, with K-1s issued through that date, and then report the remaining activity as a disregarded entity? Or should the Form 1065 cover the full 2025 tax year?

Also, for state purposes, should I expect the same split treatment, or does this depend entirely on the state? The LLC is registered in Delaware, but I’m trying to understand if there may also be state filing obligations depending on where the business had income, operations, nexus, or members.

I’m only trying to confirm the correct federal and possible state filing treatment before choosing software or hiring a preparer.

I was looking at Pub 463 to figure out something else when I stumbled upon this section:

Accounting to Your Client

If you received a reimbursement or an allowance for travel, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. If you don’t account to your client for these expenses, you must include any reimbursements or allowances in income. You must keep adequate records of these expenses whether or not you account to your client for these expenses.

If you don’t separately account for and seek reimbursement for meal and entertainment expenses in connection with providing services for a client, you are subject to the 50% limit on those expenses. See 50% Limit in chapter 2.

Surely I'm reading this wrong, but this reads to me that "IF you get reimbursement from a client for travel/gifts AND you properly account for it to them, THEN you do not have to report it as income AND you are not subject to a 50% limit (meaning you can take 100%)."

This can't be correct...is it? Is it saying that it's not subject to the 50% limit because you can't claim it at all?

I hope someone has some experience with this.

Can't find good research on if the character of the disallowed loss changes between related parties.

In my example Related Party 1 (RP1) sold personal property to Related Party 2 (RP2). Loss would have been capital loss to RP1. RP2 sells the personal property for a gain. RP2 is in the business of selling this personal property.

Seems wild to think that the disallowed loss would change character, and reduce ordinary and S/E income, but can't find anything to confirm or deny.