What is a liquidating distribution
Converting capital loss on a liquidating distribution to ordinary loss: J, A, and B are equal members in BC LLC, which owns several small commercial buildings in White Fish, Mont.
J has decided to leave the LLC, and A and B have agreed that the FMV of his interest is 0,000.
However, basis should not be allocated in excess of(f)(2)). 704(c)(1)(C) basis adjustment is not reallocated to the distributed property, and the remainder is treated as a positive Sec. If the distribution also gives rise to a negative Sec. 754 election in effect at the time of the liquidating distribution, it is treated as having made a Sec.
737); or (4) the distribution is part of a disguised sale (see Sec. A loss may be recognized upon a distribution in liquidation of a member's interest if no property other than cash, unrealized receivables, and inventory is received. Nontaxable liquidating distribution of cash and property: Z LLC is liquidating. To liquidate his interest, Z distributes to R ,000 cash plus real property with a ,000 FMV.Upon complete liquidation of a limited liability company (LLC) classified as a partnership, a distributee member generally does not recognize gain unless the cash and the fair market value (FMV) of marketable securities distributed exceed the outside basis in his or her LLC interest (Secs. (Note that this column addresses the complete liquidation of an LLC as opposed to liquidation payments made to a retiring member or a deceased member's successor in interest.) Likewise, no gain or loss is recognized by the LLC on a liquidating distribution (Sec. These general rules regarding gain or loss on liquidation are a major reason for formation as an LLC rather than as a corporation.While both entities provide owners with protection from liability, a corporation and its shareholders generally must both recognize gain or loss on liquidation. 731(a)(1) when a member receives marketable securities that are treated as money in excess of the member's basis in his or her LLC interest (see Sec. In addition, gain may be recognized if (1) distributions of Sec.Under the terms of the agreement, a substantial portion of the purchase price of the house was provided by a loan from a related party that was immediately repaid by the retiring The IRS attacked the purported distribution based on the fact that (1) the distribution was not a distribution of partnership property since the house was acquired and held for the account of the retiring partner, (2) the distribution should be recast in accordance with the doctrine the acquisition of the house by the partnership and its distribution to the retiring partner should be disregarded, and (4) the acquisition of the house by the partnership and its distribution to the retiring partner lacked economic substance and were unnecessary steps taken solely to achieve tax A member can recognize a loss on the liquidation of his or her LLC interest if the distribution consists solely of money, unrealized receivables, and inventory and the LLC's basis in those assets is less than the member's basis in the liquidated LLC interest.In such situations, the loss recognized by the member is generally a capital loss. 1231 property, a liquidating distribution of all or a portion of that property may convert the retiring member's capital loss to an ordinary Example 3.