Is this a deductible loss?

[Mary]

Entity: LLC
Taxation: Corporation
Members: 2
Ownership: 50% each

Situation: LLC sold building to one of the members at a LOSS.

What I do know:
That if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation the loss is disallowed.

But in this situation they are members (not shareholders) and neither one owns "more than 50%. The shareholders are NOT related to each other. Does this mean that in this case the loss is allowed?

Thanks.

P.S. What's the benefit of registering?

[Unregistered]

By registerng you are eligable for the non taxable Christmass bonus.

[Mary]

IRC 267(c)

just in case anyone else needs to know this someday

[OldJack]

But in this situation they are members (not shareholders) and neither one owns "more than 50%.

If the LLC (that owns the building) for federal tax purposes is being taxed as a corporation, then the sale of the building is for federal tax purposes taxed as a sale by a corporation. Any members of said LLC, for federal tax purposes, are treated and taxed as corporate shareholders. The LLC entity is only a state thing and all LLC's as such are disregarded for federal tax purposes and taxed as some other type entity. In your case all law and rules of corporate taxation apply as applicable to the entity and the individual.

As to registering... you may not get as many answers to your questions if you are not registered.

[Bees Knees]

Registering also allows you to go back and edit or delete a post after the fact. Just in case you say something you'd like to take back or change later.

[Snaggletooth]

No Loss

In all the mayhem about various above posts, it occurs to me that none of us have given Mary a straight yes/no answer to her question.

The two partners and the corporation are RELATED taxpayers. The "related" nature extends to the immediate families of individuals such that transacting with someone's wife or child will not circumvent the rules for related taxpayers. Entities such as corporations, partnerships, trusts, etc. also can be related taxpayers but I think there has to be an increased percentage of common ownership (like 80%???)

Essentially, you cannot deduct a loss on a sale to a related entity. But the disallowed loss gets added to your basis, so if you dissolve or dispose later you do eventually realize the loss you couldn't take.

Someone correct me please, if I'm wrong. I don't want to give bad advice, but I at least think Mary deserves a definitive answer.

Mary, go ahead and register -- join the comraderie, as we enjoy it. You don't have to use your real name or give us your address and phone number. You might use a pseudonym or a pen name. If you intend to visit the board often, we will eventually get to enjoy your personality without the invasion of personal space. Most of us use a pen name and give our state, as your state sometimes enters into tax topics (tax-and-spend Massachusetts, no-income-tax South Dakota, enforcement-crazy California, etc.) At any rate, welcome to our board, whether you register or not, and visit with us often.

Ron Jordan, Manchester, TN