B and s liquidating corporation
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.Consequently, she is allowed a ,000 capital loss on the liquidation of L (Sec. Note: Gain or loss recognized on a liquidation may also affect the calculation of the member's net gain for purposes of the 3.8% net investment income tax.
The proposed regulations provide that if a member with a Sec. 704(c)(1)(C) member) receives a distribution of property (whether or not the property is Sec. 704(c)(1)(C) property retained by the LLC to distributed properties of like character under the principles of Regs. 734(b) adjustment, then the negative adjustment and the Sec. 754 election solely for purposes of computing any negative Sec.
Recognizing a loss on a liquidating distribution: V has a ,000 basis in L LLC, which is classified as a partnership.
L distributes ,000 cash and inventory worth ,000 to V in complete liquidation of her LLC interest.
Under the terms of the agreement, a substantial portion of the purchase price of the house was provided by a loan from a related party that was immediately repaid by the retiring The IRS attacked the purported distribution based on the fact that (1) the distribution was not a distribution of partnership property since the house was acquired and held for the account of the retiring partner, (2) the distribution should be recast in accordance with the doctrine the acquisition of the house by the partnership and its distribution to the retiring partner should be disregarded, and (4) the acquisition of the house by the partnership and its distribution to the retiring partner lacked economic substance and were unnecessary steps taken solely to achieve tax A member can recognize a loss on the liquidation of his or her LLC interest if the distribution consists solely of money, unrealized receivables, and inventory and the LLC's basis in those assets is less than the member's basis in the liquidated LLC interest.
In such situations, the loss recognized by the member is generally a capital loss. 1231 property, a liquidating distribution of all or a portion of that property may convert the retiring member's capital loss to an ordinary Example 3.
Upon distribution of property in complete liquidation, the corporation is treated as if the distributed property is sold at FMV to the distributee (Sec. The distributee shareholder generally must recognize gain or loss equal to the difference between the FMV of the property received and his or her basis in the corporation's stock (Sec. Possibility of Gain or Loss Recognition Gain is recognized by a member in an LLC classified as a partnership on the receipt of a liquidating distribution to the extent money is distributed in excess of the distributee member's basis in his or her LLC interest (see Sec. 751 hot assets (unrealized receivables and substantially appreciated inventory) are not proportionate (see Sec.