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Discussion:LLC - transfer of member interest

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Discussion Forum Index --> Advanced Tax Questions --> LLC - transfer of member interest


Discussion Forum Index --> Tax Questions --> LLC - transfer of member interest

Barb1027 (talk|edits) said:

2 September 2009
I have a 3 member LLC. Son, managing member, 1%; his father, 49.5%; and his stepmother, 49.5%. Initial capital contributions a few years ago were $10, managing member; $495 each from the other 2 members. Parents loaned a total of $900K to the LLC. Apparantly, the intent was to be investors rather than members. Currently the parents' capital account is about ($63K) each.

Can the parents sell their interest to the managing member and his wife (keeping it a multi-member LLC)? If so, would the son and wife have to pay $126K or just $990 (the initial capital contribution)? There are no hot assets.

Any assistance would be greatly appreciated. Thank you.

Kevinh5 (talk|edits) said:

2 September 2009
parents can sell their interests for any amount they want

the law does provide for the non-recognition of loss on a sale to a related party, though.

Smktax (talk|edits) said:

2 September 2009
If the sale is for an amount below FMV, it will be treated as a part-gift, part-sale.

Barb1027 (talk|edits) said:

2 September 2009
The fact that combined they would be selling a 99% interest doesn't prohibit/terminate the partnership, correct?

How do I determine FMV? Their combined capital accounts are currently a negative 126K. Their initial capital contribution was $490 each.

If the transfer can be done without terminating the partnership, is it a matter of just keeping the loans intact and then recording the entries to clear out their capital and replace with additional units to the son and wife?

I really appreciate your assistance with this.

Kevinh5 (talk|edits) said:

2 September 2009
I believe a change of greater than 50% of the capital interest causes a technical termination of a partnership.

(something like that should have been on your SEE exam, at least)

Derwood (talk|edits) said:

3 September 2009
I would suggest that you first read the operting agreement regarding sale of interest.

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