Albert, Bert, Clark, and David Own Equal Interests in the Capital and Profits of an LLC

Albert, Bert, Clark, and David own equal interests in the capital and profits of an LLC that is taxed as a partnership. The LLC is a calendar-year taxpayer. For each of the following scenarios, determine (i) whether or not the LLC terminates and (ii) the tax consequences to the members:
a. Albert, Bert, and Clark simultaneously sell their entire interests in the LLC to David. The partnership terminates. A, B and C report gain or loss on the sale. D gets the assets with carryover basis.
b. Albert, Bert, Clart and David simultaneously sell their entire interests in the LLC to Mr. Garrison, and unrelated third party. The partnership terminates. A, B and C report gain or loss on the sale. The LLC reforms with D and Mr. Garrison as owners.

c. On December 1, the LLC sells all its assets in exchange for a note of the purchaser. After December 1, the LLC merely holds the note and collects interest until March 31 of the following year, at which time the note is paid off and the LLC distributes the proceeds to the members in liquidation of the partnership.A, B, C, and D report gain or loss on the sale of assets in X1. When the distribution occurs in year X2, the former partners recognize gain or loss when compared to their basis. The LLC terminates in X2.
d. Albert, Bert, and Clark form a new LLC. The new LLC purchases all of the assets of the old LLC, which liquidates by distributing the proceeds of the sale to the members. Old LLC terminates. The members recognize gain to the extent money is distributed in excess of the member’s basis (IRC 731(a)(1)).
e. Albert and Bert sell their entire interests to Clark and David, respectively, on the same day. Would your answer be different if Albert sells his interest six months after Bert sells his interest? One year and six months after Bert sells his interest? When two 25% members sell, that is a technical termination, since 50% was sold within a 12 month period (IRC 708(b)(1)(B)). It is no different if Albert waits 6 months (ibid). If Albert sells 18 months later, IRC 708(b)(1)(B) does not apply, and the LLC does not terminate. Albert and Bert recognize gain or loss on their sale of interest. If there is a technical termination, the LLC reforms with carryover bases, and no gain for the remaining members.
f. Albert sells his interest to Bert, and, six months later, Bert sells Albert’s interest to Clark. Would your answer be different if Bert sells Albert’s interest to Mr. Garrison? Once Bert sells his now 50% interest, the LLC terminates. It would be different if less than 50% changed hands in 12 months. If Bert sells Albert’s old 25% interest within the 12 months, the LLC does not terminate. Albert and Bert recognize gain or loss on their respective sales of interest. If there is a technical termination, the LLC reforms with carryover bases, and no gain for the remaining members. Bert’s resale to Mr. Garrison is gain/loss to Bert, but does not cause a technical termination under Regs. Sec. 1.708-1(b)(2).
g. Albert and Bert each sell their entire interest in the LLC’s capital but only half of their respective interests in the partnership’s profits. Since IRC 708(b)(1)(B) requires sale of both capital and profits, the LLC does NOT terminate.Albert and Bert recognize gain or loss on their respective sales of interest.

h. The partnership completely liquidates Albert’s and Bert’s interests on the same day.Liquidation transactions are deemed not to be sales or exchanges (Regs. Sec. 1.708-1(b)(2)).

i. Albert and Bert contribute their partnership interests to a corporation in exchange for stock of the corporation in a transaction governed by IRS 351. This does cause a technical termination under IRC 708, and is often used as an effective asset management tool to create a termination. Under 351, no gain or loss is recognized by Albert or Bert on the capitalization transfer, assuming they receive control “immediately after the exchange”.
j. Albert and Bert transfer their partnership interests on the same day to Mr. Garrison as a gift.Gift transactions are deemed not to be sales or exchanges (Regs. Sec. 1.708-1(b)(2)).

k. Albert and Bert each sell all but a de minimis amount of their LLC interests to Clark and David. A year and a day later, they sell the remaining portions to Clark and David. Termination occurs after the second sale per Regs. Sec. 1.708-1(b)(2))
l. The LLC converts to a general partnership. This is an actual termination, as a new entity must be formed. This is taxable to each member, and they are then able or deemed to contribute their interests, with appreciated tax bases, to the new partnership.