long term capital gain for new LLC members

[Robert Blake]

Company A is an operating business owned 100% by Company B. Both are LLC's.

Company B will sell 50% of Company A in February. Company A has no fixed assets, inventory, or A/R. Company B is essentially selling "the bright future" of Company A, so the new owner of Company A is essentially buying Goodwill. Company B expects long term capital gain treatment on the sale of the Company A's goodwill.

Meanwhile, in January (prior to the expected sale in February), Company B acquired two new LLC members.

Question: When the sale occurs, does the long term capital gain benefit accrue to all the members of Company B, including the newest members who have not held shares in Company B for more than one year?

In the mutual fund world, people who buy shares of a fund during the year also get long term capital gain dividends, even though they were not shareholders for more than 12 months. Is this situation with LLC members similar?

[Bees Knees]

Assuming the LLC is taxed as a partnership, long term capital gain realized by the partnership flows through to each partner on their K-1 regardless of how long a partner is a partner. It is a long term capital gain because it is the partnership (and not the individual partners) that held the asset more than one year and sold it for a gain.

This is something that should be taken into consideration when deciding the selling price of a partnership interest to a new partner. For example, if I own an asset that is worth $1 today, but I know next month it will generate $100,000 of income, will I sell 50% of it today for 50 cents? Or will I sell it today for $50,000?

A similar concept should be taken into consideration when buying or selling a partnership interest that is going to generate long term capital gain verses ordinary income. If I am selling a partnership interest that is about to generate long term capital gain, I may make the buyer pay a premium for the right to receive more favorable long term capital gain treatment on the sale proceeds verses ordinary income.