Re: Sale of LLC Interest

Forum|Forum|1 year ago
August 13, 2024
3 replies
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I am so confused. I thought that the person was one member of nine in an LLC than elected to be taxed as a partnership. If he bought out the other 8 members, then the LLC would remain with one member, yes? And the K-1s would reflect the members' contributions and distributions, yes? I am contemplating purchasing a multi- property LLC from two members. I would be a sole member owing the LLC. From what I am reading, my purchase would be an addition to the adjusted basis of the LLC and, thus, the properties and the $$ paid to the exiting members would be a distribution to them? Is this how it is handled because it is a pass through entity? If I have this right, I guess I can decide how to assign th value paid to the individual properties in the LLC, yes? It is very complicated.

Best answer by Anonymous_

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Carl11_2

Employee

There's no such thing as "elect to be taxed as a partnership". Basically, the only difference between a multi-member LLC and a partnership, is the spelling. Perhaps you meant "taxed as an S-Corp"?
Now if the multi-member LLC elected to be taxed "as an S-corp", that's a different matter. If not, the multi-member LLC ceases to exist and a new single-member LLC is established.

Laura650Author

Hi Carl, I was just following the prior discussion. I am not aware of how the LLC is reporting. I always assumed that they were always pass through entities. I am not sure I understand th tax reporting distinctions between Sub S, LLCs, and partnerships. I thought they were all pass throughs and each member reported their share on their own tax report.

Opus 17

Employee

An LLC with more than one member is automatically taxed as a partnership, no election needs to be made.

It's not clear from your question if you are buying the LLC or buying out the other members of an LLC that you are already a member of.

Anonymous_Answer

Employee

No text available

Laura650Author

Thank you Tagteam. What a wonderful group of people are on this site. I truly appreciate you all. Hopefully, the additional information I provided the others is sufficient.

Rick19744

Employee

Several thoughts and comments:

Just to clarify prior post comments, a multi-member LLC (LLC) is by default taxed as a partnership. So in essence, you have in fact "elected" to be taxed as a partnership, however, no formal election is required; this is just the default as noted.
Additional facts are definitely needed:
- Clarification as to whether you are currently a member
- How many other members are there (just like to know the facts)
- What does the current LLC hold in the way of assets
- Is there debt on the books of the LLC
- Is the LLC cash or accrual method of accounting
After responding with additional clarification, we can provide some guidance, however, in the end, you need to meet with a tax professional to make sure that this is handled properly for all parties involved.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

Laura650Author

Thank you Champ. I am not currently a member. I am looking at buying out the two existing members.

Two, as far as I know. I have not seen the controlling documents.

All real estate. About 45 SFRs.

Yes, there is debt.

I am not aware of the accounting procedure used for taxes. (Assume you meant accrual or cash for tax reporting purposes??)

Rick19744

Employee

Thanks for the additional details:

There is Revenue Ruling 99-6 that provides some guidance for your potential transaction (assumes the current LLC is taxed as a partnership).
Based on the Ruling, the existing LLC terminates when you acquire the interest and will file a final tax return.
As a result, you will now own the assets of the old LLC and you need to determine what structure you want to own those assets; individually, single-member LLC, etc. This will be a completely new structure requiring filings with your state and also a new federal EIN.
Since you are not a member of the current LLC, the accounting method question becomes moot.
Both parties will need to complete form 8594 which provides details on the allocation of the purchase price.
This is a complicated transaction and I strongly advise you to get a tax professional involved before you consummate the transaction.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.