Curated by Anthony J. Nitti, CPA, MST
Tony Nitti is based in the Denver, Colorado, office of RubinBrown. His practice focuses on corporate and partnership tax planning, with a special focus on consolidated return regulations and reorganization provisions.
A distribution from an LLC can be either a current distribution or a liquidating distribution. Current distributions include distributions which are not in liquidation of a partner’s entire interest in the LLC. Current distributions encompass not only draws against a partner’s distributive share of LLC income, however, but also any distribution in partial liquidation[1] of a partner’s interest.
A liquidating distribution is a distribution or a series of distributions to a partner which terminates a partner’s entire interest in an LLC[2].
Current Distributions
A current distribution that represents a partner’s distributive share of LLC income is taken into account on the Last day of the tax year[3], regardless of when the distribution occurred. A current distribution that represents a partial liquidation of a partner’s interest, however, is taken into account on the date of distribution. Unless the “hot asset” rules of IRC §752 apply, the LLC recognizes no gain or loss on a current distribution.
Comment
The ability of an LLC to distribute appreciated property without the recognition of gain is the primary
reason most real estate is held in a partnership form rather than in corporate form. If a corporation –
whether C or S – distributed appreciated property, IRC §311(b) requires the corporation to recognize gain as if it sold the property for its fair market value.
A distributee partner recognizes gain on a current distribution only to the extent the money distributed exceeds the partner’s adjusted basis[4] in his LLC interest.
Download the complete guide. https://lrus.wolterskluwer.com/campaign/a-guide-to-llc-distributions/
