Q:

Subject: Tax Question RE: liquidation of LLC to c-corp

 

Hello Mr. Kerstetter, we have researched the web and the print world and found your most helpful and valuable information. Thank you for your contributions to the web. We have a few questions that we are having a difficult time finding answers to, and would like to ask you if you'll allow us. In our work, we've found we get what you pay for, so we are willing to pay for your advice. Let us know what arrangements need to be made for payment.

 

A multi-member LLC has liquidated it's assets and each member is to receive distribution of the proceeds. If the member has not yet taken possession of the proceeds, how can the member direct the proceeds to invest in a c-corporation without receiving the proceeds directly?

 

Thank you for your time.

A:

You definitely need to be working with a tax pro on matters such as this.  In fact, you should have been working with one from before you even set up your LLC.

As you describe the situation, it might be too late to do anything to reduce your taxes, depending on how you had elected to report the LLC income. 

If it has been taxed as a partnership or S corp, the gains from liquidating the assets are a done deal and are to be passed on to the members via their K-1s, whether they take any cash out or not.  That is the main principle of pass-through entities.

If your LLC has been taxed as a C corp, there may possibly be ways to transfer the assets to a new C corp tax free.  It could be relatively complicated.

It would have been a much better idea to work with a tax pro before liquidating the LLC's assets because there would have been more options available.  By waiting until now to consider the tax problems, it may be too late. 

If you have been operating your LLC for all of this time without the benefit of professional tax assistance, you have probably learned an expensive lesson. 

As it says below, we are too swamped with client work to be able to take on any new ones.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/25/2006 11:19:00 AM Send this post: