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Sweeney originally contributed $286,000 in cash for a one-fourth interest in the

ID: 2518901 • Letter: S

Question

Sweeney originally contributed $286,000 in cash for a one-fourth interest in the Gilbert LLC. During the several years that Sweeney was a member of the LLC, his share of the LLC’s income was $171,600 and he withdrew $114,400 cash. The LLC’s liabilities are $143,000, of which Sweeney’s share is $35,750. The LLC has $71,500 of hot assets, of which Sweeney’s share is $17,875. Sweeney sells his LLC interest to Jana for $377,520 cash, with Jana assuming Sweeney’s share of the LLC’s liabilities.

How much is Sweeney’s gain on the sale, and what is its character? How much is Jana’s adjusted basis for her LLC interest?

What is the ordinary income recognized and the long-term gain recognized? I did the math and know the total gain on sale is $34,320 and the adjusted basis for her LLC interest is $413270, but I don't know the ordinary income and long-term capital gain.

Explanation / Answer

1. There is no Long term gain for Sweeney. He is no longer a member of Gilbert LLC. He has sold the entirety to Jana and now Jana is the member of Gilbert LLC for the equivalent of what Sweeney held

2. Short term gain of Sweeney is $16175

3. Jana's adjusted interest in Gilbert is $361075

SWEENEY

$

$

Withdrawal

114400

Original contribution

286000

Balance c/d

343200

Income

171600

457600

457600

PROFIT TO   SWEENEY

Net interest in Gilbert LLC

( $343200 + 35750 – 17875)

361075

Cash from Jana

377520

GAIN ON SALE

(Short term)

16175

377520

377520

GILBERT LLC--- FINANCIAL POSITION

$

$

$

$

SWEENEY

NOW Jana

LLC

SWEENEY

Now

Jana

LLC

ASSETS

17875

71500

LIABILITIES

35750

143000

SWEENEY

$

$

Withdrawal

114400

Original contribution

286000

Balance c/d

343200

Income

171600

457600

457600

PROFIT TO   SWEENEY

Net interest in Gilbert LLC

( $343200 + 35750 – 17875)

361075

Cash from Jana

377520

GAIN ON SALE

(Short term)

16175

377520

377520