The LLC has no unrealized receivables or appreciated inventory, so Sec. The LLC acquired the real property by R recognizes no gain or loss on the liquidation.
R first reduces his ,000 outside basis by the ,000 cash distribution.
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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.
In some cases, there may be some corporate level problems, such as the built-in gains taxes.
Tax advisers must be aware of the Subchapter C rules, especially those concerned with gain or loss recognition on the distribution.
L distributes ,000 cash and inventory worth ,000 to V in complete liquidation of her LLC interest.
Recognizing a loss on a liquidating distribution: V has a ,000 basis in L LLC, which is classified as a partnership.V receives only her proportionate share of the inventory, and L has no unrealized receivables.Because the distribution is proportionate, the hot asset rules of Sec. V has a ,000 capital loss on the liquidating distribution, computed as shown in the exhibit Under the general distribution rules, V can allocate only ,000 of basis to the distributed inventory—its adjusted basis to the LLC (Sec. This leaves V with ,000 of remaining basis in her interest but with no other distributed assets to absorb the additional basis.S Corporation liquidations generally are subject to the same rules as C corporations.However, the lack of entity-level tax in most cases creates different tax considerations.