Partnership liquidating distributions examples
Does it seem time to split things up and let each owner go his or her own way with a share of the LLC’s property?If so, it may be time to dissolve and liquidate the company and distribute its assets to its owners.Some owners may want certain company assets, and other owners may want other company assets. Do you have the votes needed under the company’s operating agreement and local LLC law to authorize the LLC’s dissolution and liquidation? Our LLC, like most, is a partnership for tax purposes, and we, the owners, are partners for tax purposes.
Fundamentally, the tax law requires that any gain realized by the partnership on the disposition of the contributed property, for example, if the partnership sells the contributed property, must be allocated to the contributing partner to the extent of the property’s built-in gain. A’s built-in gain with respect to property P is 0 (0 value at contribution less A’s 0 basis). Has it outlived its usefulness as an asset management, asset protection, or, dare we say it, wealth transfer vehicle?Are you tired of discussing the company’s operations with the other owners?The concept of taxing the contributing owner on the built-in gain in contributed property also extends to of the distribution, but the calculation is more complicated.A partner who receives a distribution of property (other than money) must recognize gain in an amount equal to the lesser of (i) the excess distribution or (ii) the partner’s net precontribution gain.
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As a result, if property has been contributed to the LLC within seven years of the planned liquidation, the owners should take care to identify any built-in gain and to consider distributing any such contributed property in the liquidation to the contributing owner.