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05/24/2012 at 04:51PM PDT

Important Announcement! A planned system-wide upgrade will take place over the Memorial Day Weekend in the US (From Thurs, May 24, 2012 at 6 pm PDT thru Tues, May 29, 2012 at 5 am PDT). This includes QuickBooks, QuickBooks Payroll, Point of Sale, & Salesforce.com. This is only for US based products. This does not affect QuickBooks Online customers! During this time, you can shop, but can’t place orders online, activate products or update account info. We apologize for the inconvenience & thank you for patience while we improve our infrastructure to better serve you. International versions are unaffected. For more info, see our community discussion.

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Contributor

06/27/11 12:26pm PDT

interest redemption

I am a new CPA that has a client (LLC) this has requested my help with the interest redemption of a withdrawing/retiring partner. Can anyone suggest any good resourses, articles, etc... that might help walk me through this process? This is my first interest redemption case. The general details of the case:

3 member LLC. One member leaving via a redemption of interest (the LLC is buying out this partner). The members have equal interest. The basis of the withdrawing partner is less than the cash distribution he is recieving. Therefore I believe it is necessary to increase the basis of all three members so that the cash the withdrawing member recieves matches his basis exactly?

What are the tax implications for the LLC? What is the most advantagous way for the LLC to handle this situation?

2 Replies

New Member

02/11/12 11:43am PST

See Levun-Cohen article located at http://www.lgclaw.com/pubs.htm, there is a publication named "sales vs. redemptions of partnership interests" that might be helpful.

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Accountant Community AllStar

Intuit Moderator

Accountant Community AllStar

02/11/12 3:30pm PST

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Therefore I believe it is necessary to increase the basis of all three members so that the cash the withdrawing member recieves matches his basis exactly? This is incorrect.

The selling member is selling a capital asset. Since the amount he receives for his interest is more than his basis, he has a gain. The gain is taxable as ordinary income to the extent of "hot assets" (generally his share of A/R, Inventory) See Form 8308.

Partnerships are complicated. Hopefully you will get some additional resource recommendations from others.

Edit: Just realized this is an old post.

The more I know, the more I don't know.

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