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
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