david3
Level 7
12-07-2019
12:55 AM
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An LLC member is bought out of a 3 member LLC for $18K. His capital balance was $6K at the time. So there is a $12K negative capital balance left on the balance sheet for this member.
There are no hot assets or debt - only cash and fixed assets.
The buyout agreement states that the company will buy out the member. Another member also contributed $18K capital and is now a 2/3 member while the other remaining member remains a 1/3 member. This probably is irrelevant.
How do I report this in PS? The departing member's capital balance is showing negative $12K. Do I simply enter a positive amount for $12K in the "Other Adjustments" line on that member's K-1 Wks?
Where is the $12K negative balance reported in the balance sheet and the tax return?
Thanks.
There are no hot assets or debt - only cash and fixed assets.
The buyout agreement states that the company will buy out the member. Another member also contributed $18K capital and is now a 2/3 member while the other remaining member remains a 1/3 member. This probably is irrelevant.
How do I report this in PS? The departing member's capital balance is showing negative $12K. Do I simply enter a positive amount for $12K in the "Other Adjustments" line on that member's K-1 Wks?
Where is the $12K negative balance reported in the balance sheet and the tax return?
Thanks.
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TaxMonkey
Level 8
12-07-2019
12:55 AM
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Are you familiar with IRC 754 election and partnership basis adjustments?
Regardless, the capital account of the partner being bought about must be zero, so a phantom contribution should be made to zero out his capital account. The will result in a phantom asset on the partnerships balance sheet. This will be non deductible to the partnership, baring a 754 election and all that entails.
david3
Level 7
12-07-2019
12:55 AM
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Doesn't the IRC 754 election apply to a purchasing member? The LLC bought out the member.
david3
Level 7
12-07-2019
12:55 AM
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Also, the FMV of the assets are not higher than the book value so a 754 election wouldn't make sense.
Thanks.
Thanks.
TaxMonkey
Level 8
12-07-2019
12:55 AM
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754 applies to partner liquidations as well, but it is optional. for some reason the partner got $12k more than his investment in the partnership warranted, if it wasn't due to an asset increase, then its goodwill.