Well I really wanted to say "tell the attorney who wrote the contract to do the tax return", but that probably wouldn't have helped.

Ok. I don't believe that there will be any reporting of the rental activity on the Mother's return. I am not sure if she has actually sold the property at this point, but it seems like she has given up the right to have any control over the property, or to have any "financial interest" in the activity on the property.

I think the LLC needs to file a tax return (partnership unless other election made) with k-1's to each of the siblings. If the siblings have also personally guaranteed the loan, then it would be a recourse loan, giving them basis in case of losses.  I have not, in my mind, determined if I think the LLC has actually purchase the property, giving them basis and allowing them to take depreciation, or whether they have merely acquired some kind of right to "use and control" of the property.

The last sentence also applies to "Is there a sale that needs reported on the Mothers Return?' If there is, would the sale be reported as an installment sale, if so there are no payments to the mother so possibly no effect anyway,(unless there is some 1245 property recapture in the year of sale.) Or is it actually a fancy of disguising a gift, to try to get a step up basis at mothers death?

I am pretty confident that I could defend not reporting any of the rental activity on Mother's return. And that a return need filed for the LLC with the rental activity. Everything after that get's pretty speculative.