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How do I report a departing LLC member?

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Level 3
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.
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Highlighted
Level 8

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.

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4 Replies 4
Highlighted
Level 8

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.

View solution in original post

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Highlighted
Level 3
Doesn't the IRC 754 election apply to a purchasing member? The LLC bought out the member.
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Highlighted
Level 3
Also, the FMV of the assets are not higher than the book value so a 754 election wouldn't make sense.

Thanks.
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Highlighted
Level 8
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.
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