Taxation of liquidating distributions


03-Feb-2018 17:50

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Ethel and Francis are members of an LLC classified as a partnership for federal tax purposes. The LLC doesn't hold any unrealized receivables or substantially appreciated inventory.Ethel sells her entire interest in the LLC to Francis for ,000.You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.This publication provides federal income, employment, and excise tax information for limited liability companies.Otherwise, you can go to gov/orderforms to order current and prior-year forms and instructions. For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law.An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301.7701-3.For purposes of determining the tax treatment of Francis, the partnership is deemed to make a liquidating distribution of all of its assets to Ethel and Francis, and after this distribution, Francis is treated as acquiring the assets deemed to have been distributed to Ethel in liquidation of Ethel's partnership interest.Francis' basis in the assets attributable to Ethel's one-half interest in the partnership is ,000, the purchase price for Ethel's partnership interest.

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Francis must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by section 731(a). George and Henrietta are members of an LLC classified as a partnership for federal tax purposes. The LLC doesn't hold any unrealized receivables or substantially appreciated inventory.After an LLC has determined its federal tax classification, it can later elect to change that classification. Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships.For details, see If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U. See the Instructions for Form 1065 for reporting rules that apply specifically to LLCs.A member manager is any owner of an interest in the LLC who, alone or together with others, has the continuing authority to make the management decisions necessary to conduct the business for which the LLC was formed.



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