How do I report a departing LLC member?

4 replies
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An LLC member is bought out of a 3 member LLC for $18K. His capital balance was $6K at the time. So there is a $12K negative capital balance left on the balance sheet for this member.

There are no hot assets or debt - only cash and fixed assets.

The buyout agreement states that the company will buy out the member. Another member also contributed $18K capital and is now a 2/3 member while the other remaining member remains a 1/3 member. This probably is irrelevant.

How do I report this in PS? The departing member's capital balance is showing negative $12K. Do I simply enter a positive amount for $12K in the "Other Adjustments" line on that member's K-1 Wks?

Where is the $12K negative balance reported in the balance sheet and the tax return?

Thanks.

ProSeries Professional

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T

TaxMonkeyAnswer

Level 7

Are you familiar with IRC 754 election and partnership basis adjustments?

Regardless, the capital account of the partner being bought about must be zero, so a phantom contribution should be made to zero out his capital account. The will result in a phantom asset on the partnerships balance sheet. This will be non deductible to the partnership, baring a 754 election and all that entails.

T

TaxMonkeyAnswer

Level 7

Are you familiar with IRC 754 election and partnership basis adjustments?

Regardless, the capital account of the partner being bought about must be zero, so a phantom contribution should be made to zero out his capital account. The will result in a phantom asset on the partnerships balance sheet. This will be non deductible to the partnership, baring a 754 election and all that entails.

D

david3Author

Level 7

Doesn't the IRC 754 election apply to a purchasing member? The LLC bought out the member.

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