P'ship expert needed

[Margaret]

An LLC treated as p'ship ended with one member buying out the other. I know there must be a final 1065 for the part year and the rest of the year the business is on remaining member's Sch. C.

In IRB 1999-06, I read that the p'ship is deemed to make a liquidating distribution of all assets...How do I determine the value of those assets? In my dpn software and tax software, do I calculate as abandoned? There isn't a "liquidated" option. I assume that depreciation up to the end is allowable but I have to have an ending BS of all zero's, don't I?

To further muddy the waters, the remaining member contributed all the assets (trucks, heavy equipment) to the business which were gifts from his father-in-law so his basis is actually zero. The other member contributed operating capital.

I am comfortable with the rest of the valuation of assets following this but am stumped on how to handle the distribution and asset valuation.

Thanks for any guidance on this. I have several other colleagues around, but no p'ship experts.

[Snaggletooth]

Armando

Margaret, I'm not the partnership expert you need, but I'm posting in order that your thread might get noticed.

Two people who can tell you with good authority are Armando Beujalois and Lance Emerson. I know they are busy with their tax practices but sometimes they check the board when they come up for air. If you get a response from them it will be good advice.

[Margaret]

Thanks so much for the attention. I do hope those folks will find a minute or two to provide input!

[S T]

Where are

Margaret, I will lend a hand as well.

It would be so nice to hear from Armando Beaujolis or Lance Emerson! It has been a long time, but I do believe, that they are out there somewhere.

There are also a few others that could lend some insight as well!

Sandy

[jainen]

a bad idea

>>How do I determine the value of those assets?<<

I don't know about partnerships, either. And I hate LLC's in general. But I'll make something up because I can see you are stuck and everybody is calling for someone else to answer the question.

Hey, that's not a bad idea. Someone who can answer your question about the value of those assets is the guy who just bought 'em from his partner.

[cpadan]

Thanks for any guidance on this. I have several other colleagues around, but no p'ship experts.

Look at section 732 for basis of the assets distributed and section 723 for contribution of property. Publication 541 might also help.
Dan

[Gretel]

To further muddy the waters, the remaining member contributed all the assets (trucks, heavy equipment) to the business which were gifts from his father-in-law so his basis is actually zero. The other member contributed operating capital.
.

No partnership expert either. Just commenting on your gift of assets approach. If personal assets are contributed to a business it is my understanding that the basis is FMV unless you have a lower cost basis. It doesn't matter if they were gifted.

[dsi]

Margaret,
First, I would NOT take it upon myself to determine the FMV of your client's assets. They need to provide that info to you. I would put htis ball back in their court.

[Armando Beaujolais]

My ears were burning.

Check out TheTaxBook page 20-12 under "Owner sells entire interest in LLC to other owner." It talks about LLC's, but it's a partnership for tax purposes.

FMV doesn't come into play other than the buyout price. You're working with basis on partnership contributions and distributions. The remaining owner's basis is increased by the amount paid for the other partner's interest. No gain unless cash received (deemed received on the deemed distribution) is greater than the partner's basis.

The rules are laid out in Revenue Ruling 99-6. Go to "Links" above, then "Tax Research Links." The information has an example of the tax effects of one partner buying out the other.

>>>This information is not meant to be used.<<<

[Margaret]

Thanks for all the responses, especially at this busy time. I did look at TTB and read about the liquidating distributions. I also have no problem with the basis of the distributed property because the remaining member is paying $x for it....EXCEPT that he contributed all of it to the LLC with a basis of $0 as that was the basis to him. His father-in-law's business had fully depreciated it. He is really just paying the other guy to get lost.

I still am uncertain as to how to "label" the disposition in the tax software. It seems as though I have to manually calculate the acc dpn to the date of distribution. Another issue is that the LLC is so deep in debt at this point that there is nothing to distribute so each member will have forgiveness of debt except that the remaining member has assumed the liabilities in order to keep the business going.

Sheesh, I should have fired this client long ago when I saw this coming down the pike! What a fine mess I've gotten myself into, right? I think with this input and IRB 1999-06, I have some foundation to work with. Thanks again!