THE COMPLETE GUIDE TO LIMITED LIABILITY COMPANIES BY WAYNE A by legalstuff2

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									                              THE COMPLETE GUIDE TO
                LIMITED LIABILITY COMPANIES
                                              BY
                                     WAYNE A. HAGENDORF

                                            CHAPTER ONE
                      Sole Proprietorship Versus Limited Liability Company
I.    COMMON CHARACTERISTICS
      (A) Single Owner
      (B) Operation/Management
      (C) Tax Treatment

II.   DIFFERENCES BETWEEN SOLE PROPRIETORSHIPS AND LLCs
      (A) Formation
      (B) Operation/Management
      (C) Liability
      (D) Tax Treatment
      (E) Termination

III. CONVERSION FROM A SOLE PROPRIETORSHIP TO AN LLC
     (A) Methods
     (B) Tax Consequences
         (1) Federal
         (2) State
     (C) Other Consequences

IV. LIMITED LIABILITY COMPANY ADVANTAGES

V.    SOLE PROPRIETORSHIP ADVANTAGES
TABLE 1A.1 - Advantages and Disadvantages of an LLC and Sole Proprietorship
TABLE 1A.2 - Side-By-Side Comparison of the LLC and the Sole Proprietorship
                                              CHAPTER 2

                          Partnership Versus Limited Liability Company
I.    COMMON CHARACTERISTICS
      (A) Contractual in Nature
      (B) Operation/Management
      (C) Tax Treatment
      (D) State Statutes
II.   DIFFERENCES BETWEEN PARTNERSHIPS AND LLCs
      (A) Formation
      (B) Operation/Management
      (C) Liability
      (D) Tax Treatment
      (E) Termination


                                                 -- PAGE 1 --
III. CONVERSION FROM A PARTNERSHIP TO AN LLC
     (A) Methods
     (B) Tax Consequences
         (1) Federal
         (2) State
     (C) Other Consequences

IV. LIMITED LIABILITY COMPANY ADVANTAGES

V.    PARTNERSHIP ADVANTAGES

TABLE 2.1 - Advantages and Disadvantages of an LLC and Proprietorship

TABLE 2.2 - Side-By-Side Comparison of the LLC and the General Proprietorship

ENDNOTES
                                             CHAPTER 3
               Limited Liability Partnership Versus Limited Liability Company
I.    COMMON CHARACTERISTICS
      (A) Contractual in Nature
      (B) Formation
      (C) Operation/Management
      (D) Tax Treatment
      (E) State Statutes
II.   DIFFERENCES BETWEEN LLPs AND LLCs
      (A) Formation
      (B) Liability
      (C) Operation/Management
      (D) Tax Treatment
      (E) Termination

III. CONVERSION FROM AN LLP TO AN LLC
     (A) Methods
     (B) Tax Consequences
         (1) Federal
         (2) State
     (C) Other Consequences

IV. LIMITED LIABILITY COMPANY ADVANTAGES

V.    LIMITED LIABILITY PARTNERSHIP ADVANTAGES

TABLE 3.1 - Advantages and Disadvantages of an LLC and LLP

TABLE 3.2 - Side-By-Side Comparison of the LLC and LLP

ENDNOTES
                                             CHAPTER 4

                    Limited Partnership Versus Limited Liability Company
I.    COMMON CHARACTERISTICS
      (A) Formation
      (B) Liability

                                                -- PAGE 2 --
      (C) Tax Treatment
      (D) State Statutes

II.   DIFFERENCES BETWEEN LIMITED PARTNERSHIPS AND LIMITED LIABILITY COMPANIES
      (A) Formation
      (B) Operation/Management
      (C) Liability
      (D) Tax Treatment
          (1) Allocation of Tax Basis (Federal)
          (2) Passive Activity Losses (Federal)
          (3) Self-Employment Income (Federal)
          (4) Tax Matters Partner (Federal)
          (5) State Taxation
      (E) Termination

III. CONVERSION FROM A LIMITED PARTNERSHIP TO A LIMITED LIABILITY COMPANY
     (A) Methods
     (B) Tax Consequences
         (1) Federal
         (2) State
     (C) Other Consequences

IV. LIMITED LIABILITY COMPANY ADVANTAGES

V.    LIMITED PARTNERSHIP ADVANTAGES

TABLE 4.1 - Advantages and Disadvantages of an LLC and Limited Partnership

TABLE 4.2 - Side-By-Side Comparison of the LLC and Limited Partnership

ENDNOTES
                                             CHAPTER 5

                           Corporation Versus Limited Liability Company
I.    COMMON CHARACTERISTICS
      (A) Formation
          (1) Filing
          (2) Organizational Documents
          (3) Owners
      (B) Operation/Management
      (C) Liability
          (1) Veil-Piercing Theories
          (2) Fiduciary Duties
      (D) Termination
          (1) Continuity of Life
          (2) Transfer of Interests

II.   DIFFERENCES BETWEEN CORPORATIONS AND LIMITED LIABILITY COMPANIES
      (A) Formation
      (B) Operation/Management
      (C) Liability
      (D) Tax Treatment
      (E) Termination

                                               -- PAGE 3 --
III. CONVERSION FROM A CORPORATION TO A LIMITED LIABILITY COMPANY
     (A) Methods
     (B) Tax Consequences
     (C) Other Consequences

IV. LIMITED LIABILITY COMPANY ADVANTAGES

V.    CORPORATION ADVANTAGES

TABLE 5.1 - Advantages and Disadvantages of an LLC and Corporation

TABLE 5.2 - Side-By-Side Comparison of the LLC and Corporation

ENDNOTES
                                            CHAPTER 6
                        S Corporation Versus Limited Liability Company
I.    COMMON CHARACTERISTICS
      (A) Formation
      (B) Operation/Management
      (C) Liability
          (1) Veil-Piercing Theories
          (2) Fiduciary Duties
      (D) Tax Treatment
      (E) Termination
          (1) Continuity of Life
          (2) Transfer of Interests

II.   DIFFERENCES BETWEEN AN S CORPORATION AND A LIMITED LIABILITY COMPANY
      (A) Formation
      (B) Operation/Management
      (C) Liability
          (1) Liability Standard
          (2) Erroneous Distributions
      (D) Tax Treatment
          (1) Obtaining Tax Status
          (2) Terminating Tax Status
          (3) Application of Tax Rules
          (4) State Taxation
      (E) Termination

III. CONVERSION FROM AN S CORPORATION TO A LIMITED LIABILITY COMPANY
     (A) Methods
     (B) Tax Consequences
     (C) Other Consequences

IV. LIMITED LIABILITY COMPANY ADVANTAGES

V.    S CORPORATION ADVANTAGES

TABLE 6.1 - Advantages and Disadvantages of an LLC and S Corporation


                                               -- PAGE 4 --
TABLE 6.2 - Side-By-Side Comparison of the LLC and S Corporation

ENDNOTES
                                               CHAPTER 7

                              Establishing a Limited Liability Company

I.    CREATION BY STATE STATUTE
      (A) In General
      (B) Mandatory v. Default Provisions
      (C) State of Organization

II.   ELEMENTS OF FORMATION
      (A) Name
          (1) Required Language
          (2) Prohibited Language
          (3) Improper Use of Name
          (4) Reserved Names
          (5) Fictitious Names
          (6) Name Infringement
      (B) Duration
          (1) Dissolution Events
          (2) Perpetual Life
      (C) Members
          (1) Number of Members
          (2) Type of Members
      (D) Purpose
          (1) Majority
          (2) Specified Activities
          (3) Prohibited Activities
          (4) Professional LLCs
      (E) Powers
          (1) General Rule
          (2) Minority Views
          (3) Laundry List of Powers
          (4) Other Powers
          (5) Effect of Lack of Power
      (F) Registered Agent
          (1) Change in Registered Agent
          (2) Failure to Maintain Registered Agent
          (3) Purpose
      (G) Operating Agreement
III. PROCEDURE
     (A) Filing
         (1) Person(s) Filing
         (2) Procedures
     (B) Existence
         (1) Majority
         (2) Certificate of Organization/Certificate of Good Standing
         (3) Case Law

                                                  -- PAGE 5 --
      (C) Articles of Organization
          (1) Basic Elements
          (2) Other Required Elements
          (3) Optional Elements
          (4) False Statements
          (5) Execution
      (D) Acceptance of Articles of Organization
          (1) Majority
          (2) Minority
          (3) Limitation on LLC
      (E) Rejection of Articles of Organization
          (1) Notice
          (2) Grace Period
          (3) Consequences of Rejection
      (F) Amending the Articles of Organization
          (1) Optional Amendments
          (2) Required Amendments
          (3) Procedure
          (4) Authority to Amend
          (5) Case Law
      (G) Other Formation Requirements
      (H) Other Formation Issues

IV. MEMBERSHIP
    (A) Admission of Members
        (1) General Rule
        (2) Statute Provisions
        (3) Case Law
    (B) Admission of Additional Members
        (1) General Rule
        (2) Statute Provisions
        (3) Case Law
    (C) Membership Certificates

V.    SUMMARY CHECKLIST FOR ESTABLISHING A LIMITED LIABILITY COMPANY

ENDNOTES
                                                   CHAPTER 8
                                       Flow-Through Tax Treatment
I.    IN GENERAL

II.   FEDERAL TAX TREATMENT
      (A) History
          (1) Initial Rulings
          (2) Revenue Ruling 88-76
          (3) “Check the Box” Election
      (B) Classification as a Partnership (Flow-Through Entity) Prior to January 1, 1997
          (1) Application
          (2) The Corporate Characteristics
          (3) Other Requirements
                                                    -- PAGE 6 --
          (4) Conclusion
          (5) Checklist for Federal Flow-Through Tax Treatment
      (C) Tax Classifications Under Certain State LLC Statutes
          (1) Bulletproof Statutes
          (2) Flexible Statutes
      (D) IRS Rulings on Certain State LLC Statutes
          (1) Rulings on Bulletproof Statutes
          (2) Rulings on Flexible Statutes
      (E) Classification as a Partnership After January 1, 1997 (Treasury Regulation § 301.7701)
          (1) In General
          (2) The Election
          (3) Default Classification Rules
          (4) Case Law
III. STATE TAX TREATMENT
     (A) Majority View
     (B) Minority View
     (C) Other Taxes
IV. SUMMARY
FORM 8832 - Entity Classification Election
ENDNOTES
                                                 CHAPTER 9

                                           Capital Contributions

I.    CONTRIBUTIONS TO THE LLC
      (A) Contributions to Capital
          (1) Limitations
          (2) Exception
          (3) Additional Contributions
          (4) Valuation
          (5) Failure to Contribute
      (B) Liability for Contributions
          (1) Statute of Frauds
          (2) Third-Party Enforcement
          (3) Contribution Agreements and Contribution Allowance Agreements
      (C) Transfer of Property

II.   LLC DEBT
      (A) Limitations
      (B) Mandatory Provisions
      (C) Default Provisions

III. SECURITY ISSUES
     (A) Federal Security Laws
         (1) Application of Security Laws
         (2) LLC Interests as “Stock”
         (3) LLC Interests as “Investment Contracts” (The Howey Test)
         (4) LLC Interests as “Investment Contracts” (The Risk Capital Test)
         (5) LLC Interests as a “Security”

                                                    -- PAGE 7 --
      (B) State Security Laws
IV. SUMMARY
ENDNOTES
                                              CHAPTER 10

                                  The Limited Liability Company Entity

I.    THE ENTITY CONCEPT
      (A) Single Entity Concept
          (1) Case Law
          (2) Limitations/Exceptions
      (B) Powers
      (C) Ownership of Property
      (D) Business Transactions
          (1) Execution of Documents
          (2) Contracting Debts
          (3) Transactions With Members and Managers
          (4) Transactions Outside the State
          (5) Forfeiture of Right
      (E) Records and Information
          (1) Maintenance of Records and Information
          (2) Filings With the State
          (3) Right to Inspect
          (4) Confidentiality
          (5) Case Law
      (F) Suits By and Against the LLC
          (1) Service of Process
          (2) Parties to Action
          (3) Standing
          (4) Personal Jurisdiction
          (5) Representation
          (6) Federal Diversity Jurisdiction
          (7) Legal Rights
          (8) Limitations on Legal Rights
      (G) Professional LLCs
      (H) Series LLCs
          (1) Definition
          (2) Formation
          (3) Application
      (I) The Limited Liability Company as an Asset Protection Tool
          (1) “Inside Out” Protection
          (2) “Outside In” Protection

II.   MEMBERS’ INTERESTS
      (A) Issuance
      (B) Nature of Interest
          (1) Classification
          (2) Rights
          (3) Different Classes
      (C) Member Relations

                                                  -- PAGE 8 --
          (1) Authority
          (2) Relationship Among Members
          (3) Voting
          (4) Meetings
          (5) Agreements
          (6) Preemptive Rights
          (7) Derivative Actions
          (8) Dissenter’s Rights
      (D) Expulsion

III. TRANSFER OF A MEMBER’S INTEREST
     (A) Right to Transfer
     (B) Effect of Transfer
         (1) Restrictions by the LLC
         (2) Mandatory Provisions
         (3) Default Provisions
         (4) Transferor’s Rights
         (5) Case Law

ENDNOTES

                                             CHAPTER 11
                                      The Operating Agreement
I.    INTRODUCTION

II.   FORCE AND EFFECT
      (A) Provision Hierarchy
      (B) Oral v. Written
      (C) Adoption
      (D) Enforcement
          (1) Validity of Operating Agreement
          (2) Parties to the Operating Agreement
          (3) Operating Agreement Provisions
          (4) Breach of Operating Agreement

III. CONTENTS OF THE OPERATING AGREEMENT
     (A) Flexibility
     (B) Statutory Provisions
     (C) Drafting the Operating Agreement

IV. AMENDING, ALTERING, OR REPEALING THE OPERATING AGREEMENT
    (A) By Agreement
    (B) Statutory Provisions
    (C) Case Law
        (1) Rescission
        (2) Modification
V.    SUMMARY CHECKLIST FOR OPERATING AGREEMENT
ENDNOTES

                                                   -- PAGE 9 --
                                              CHAPTER 12

                            Governance of the Limited Liability Company
I.    INTRODUCTION
      (A) Centralized v. Decentralized Management
      (B) Governing Law
      (C) Required Formalities

II.   MANAGEMENT BY MEMBERS
      (A) Articles of Organization or Operating Agreement
      (B) Statutory Authority
          (1) Mandatory Provisions
          (2) Default Provisions
      (C) Authority to Bind the LLC
      (D) Case Law
III. MANAGEMENT BY MANAGERS
     (A) Articles of Organization or Operating Agreement
         (1) Management Models
         (2) Issues
     (B) Statutory Authority
     (C) Case Law
         (1) Definition of Manager
         (2) Removal of Manager
         (3) Manager Authority
     (D) Authority to Bind the LLC
IV. FINANCES
    (A) Allocation of Profits and Losses
        (1) Operating Agreement
        (2) Statutory Provisions
        (3) Case Law
    (B) Distributions
        (1) Operating Agreement
        (2) Statutory Provisions
        (3) Case Law
    (C) Withdrawal of Capital Contributions
        (1) Operating Agreement
        (2) Statutory Provisions
        (3) Case Law
V.    SUMMARY
      (A) Management by Members
      (B) Management by Managers
      (C) Finances

ENDNOTES
                                            CHAPTER 13

                                              Liability Issues
I.    LIABILITIES OF THE LIMITED LIABILITY COMPANY
      (A) Liabilities to Third Parties
                                                  -- PAGE 10 --
      (B) Liabilities to Members and Managers
      (C) Successor Business Liability
II.   LIABILITIES OF MEMBERS
      (A) To Creditors of the LLC
          (1) General Rule
          (2) Exceptions
          (3) Piercing the LLC Veil
          (4) Agency Theory
          (5) Case Law
      (B) To the LLC and Other Members
          (1) Liability for Contributions
          (2) Liability for Distributions
          (3) Liability for Return of Capital Contributions
          (4) Suits Among Members
          (5) Fiduciary Duties
          (6) Other Liabilities
      (C) To Judgment Creditors (Charging Orders)
      (D) To Others
III. LIABILITIES OF MANAGERS
     (A) To Creditors of the LLC
         (1) General Rule
         (2) Exceptions
         (3) Case Law
     (B) To the LLC and Members
         (1) Duties and Standard of Care
         (2) Breach of Duties
         (3) Other Liabilities

IV. INDEMNIFICATION
    (A) In General
    (B) Case Law
V.    SUMMARY
      (A) LLC Liabilities
      (B) Member Liabilities
      (C) Manager Liabilities
      (D) An LLC May Indemnify its Members and Managers
ENDNOTES
                                              CHAPTER 14
                                          Methods of Termination
I.    INTRODUCTION

II.   VOLUNTARY TERMINATION
      (A) Period of Duration
      (B) Consent of Members
      (C) Other Specified Events
      (D) Bankruptcy

III. INVOLUNTARY TERMINATION

                                                   -- PAGE 11 --
      (A)   Period of Duration
      (B)   No Members
      (C)   Failure to Return Member Contribution
      (D)   Dissolution Events
            (1) Resignation of Member
            (2) Bankruptcy
            (3) Right to Continue
            (4) Members’ Consent to Continue

IV. JUDICIAL OR ADMINISTRATIVE TERMINATION
    (A) Court Proceeding by Member
        (1) Grounds for Dissolution
        (2) Return of Capital
        (3) Case Law
    (B) Court Proceeding by State Authority
        (1) Procedure
        (2) Grounds for Dissolution
    (C) Court Proceeding by Creditors
    (D) Bankruptcy

V.    MERGERS AND CONSOLIDATIONS
      (A) Dissenters’ Rights
      (B) Approval of Merger or Consolidation
      (C) Case Law
VI. SUMMARY
ENDNOTES
                                              CHAPTER 15
                                      Consequences of Termination
I.    EFFECT OF TERMINATION ON LLC BUSINESS
      (A) Timing of Dissolution
      (B) Intent to Dissolve
      (C) “Winding Up” the Business
          (1) Persons to Wind Up Business
          (2) Permissible Actions
          (3) Continuation of Proceedings
          (4) Supervised Winding Up/Receivers
          (5) Compensation

II.   DISTRIBUTION OF ASSETS
      (A) Priority
      (B) Distribution to Members
      (C) Claims Against a Dissolved LLC
      (D) Insufficient Assets for Creditors

III. PROCEDURE TO TERMINATE THE LLC
     (A) Articles of Dissolution
         (1) Contents
         (2) Filing

                                                    -- PAGE 12 --
      (B) Termination of Existence
          (1) Cancellation of Certificate of Organization
          (2) Cancellation of Articles of Organization
IV. REVOCATION OF DISSOLUTION
V.    SUMMARY
ENDNOTES
                                             CHAPTER 16

         Introduction to the Taxation and Formation of the Limited Liability Company
I.    INTRODUCTION TO THE LLC

II.   FORMATION OF THE LLC
      (A) The Tax-Free Contribution v. the Taxable Exchange (The Disguised Sale)
      (B) An LLC Interest in Exchange for Services
          (1) Services in Exchange for an Interest in Capital
          (2) Services in Exchange for an Interest in Profits

III. BASIS OF LLC INTEREST TO MEMBER
     (A) Contributed Property Subject to Indebtedness
         (1) Increase in Member’s Liabilities
         (2) Decrease in Member’s Liabilities
         (3) Liability to which Property is Subject
         (4) Adjusting a Member’s Basis

IV. BASIS OF PROPERTY CONTRIBUTED BY A MEMBER TO AN LLC

V.    CONVERSION OF EXISTING BUSINESS TO AN LLC
      (A) Converting a Partnership to an LLC (Partnership Classification)
      (B) Converting a Partnership to an LLC (Corporate Classification)
      (C) Converting a Corporation to an LLC (Partnership Classification)
      (D) Converting a Corporation to an LLC (Corporate Classification)
      (E) Converting an S Corporation to an LLC (Partnership Classification)
      (F) Converting an S Corporation to an LLC (Corporate Classification)
VI. SUMMARY
ENDNOTES
                                             CHAPTER 17

      The Changes Made By The Jobs and Growth Tax Relief Reconciliation Act of 2003
I.    INTERNAL REVENUE CODE § 702

II.   REDUCTION OF INCOME TAX RATES
      (A) Top Four Tax Rates
      (B) Income Formerly Taxed at the 10% Rate
      (C) Code Provisions Covering Income Tax Rates

III. INCREASE OF THE ALTERNATIVE MINIMUM TAX EXEMPTION

IV.   LONG TERM CAPITAL GAINS TAX REDUCED
                                                  -- PAGE 13 --
V.     TAX ON QUALIFIED DIVIDENDS CONSIDERED NET CAPITAL GAINS AND REDUCED TO 15%

VI. CONFERENCE REPORT FOR CAPITAL GAINS AND DIVIDEND PROVISIONS
    (A) Reduced Individual Capital Gain Rates
    (B) Treatment of Dividend Income of Individuals
VII. INCREASE IN THE SECTION 179 DEPRECIATION DEDUCTION
VIII. INCREASE IN FIRST YEAR BONUS DEPRECIATION
                                          CHAPTER 18

       Taxation of the Limited Liability Company (Partnership Classification) Operations
I.     THE ENTITY CONCEPT
       (A) Classification
       (B) Tax Return
       (C) Effect on Members

II.    THE LLC TAX YEAR
       (A) The General Rule
           (1) Determination
           (2) Rationale
           (3) Change in Tax Year
       (B) Effect on Members

III.   THE COMPUTATION OF LLC INCOME
       (A) Reporting by the LLC
       (B) Reporting by the Member

IV.    TAX ELECTIONS

V.     THE LLC MEMBER’S DISTRIBUTIVE SHARE
       (A) The LLC Agreement
           (1) Form
           (2) Amendments
       (B) Substantial Economic Effect

VI. FAMILY LLCs
    (A) LLC Interest Acquired by Gift
    (B) LLC Interest Acquired by Purchase
    (C) Capital as a Material Income-Producing Factor
    (D) Capital as a Nonmaterial Income-Producing Factor

VII. LOSSES
     (A) At-Risk Limitation
     (B) Passive Activity Limitation
         (1) The General Rule
         (2) Application of the Rules

VIII. BASIS OF A MEMBER’S INTEREST
      (A) Beginning Basis
          (1) Acquisition by Purchase
          (2) Acquisition by Gift

                                               -- PAGE 14 --
            (3) Acquisition by Inheritance
            (4) Effect on the LLC
        (B) Adjustments
            (1) Increases
            (2) Decreases
            (3) Alternate Method
            (4) Liabilities
IX. SUMMARY
ENDNOTES
                                             CHAPTER 19

       Distributions from and Transfers of an Interest in an LLC Which Possesses Unrealized
                                    Receivables and Inventory
I.      INTRODUCTION
        (A) Corporate Classification
        (B) Partnership Classification

II.     THE COLLAPSIBLE LLC
        (A) Collapsible Partnership
        (B) Collapsible Corporation

III.    THE GENERAL RULES COVERING UNREALIZED RECEIVABLES AND INVENTORY (SECTION 751)

IV.     UNREALIZED RECEIVABLES
        (A) Definition
            (1) Unrealized Receivables from Services
            (2) Depreciation Recapture
        (B) Case Law
V.      INVENTORY
VI. DETERMINATION OF GAIN OR LOSS ON UNREALIZED RECEIVABLES AND INVENTORY
    (A) Computation
        (1) Allocation of Sales Price
        (2) Allocation of Basis
        (3) Recognition of Gain or Loss
    (B) Special Transfer Basis
VII. NOTIFICATION REQUIREMENTS FOR SELLING MEMBER AND LLC
     (A) Selling Member
         (1) Notification to IRS
         (2) Notification to LLC
     (B) LLC
         (1) Notification to IRS
         (2) Notification to Transferor and Transferee
VIII. SUMMARY
ENDNOTES
                                             CHAPTER 20
                                         Distributions from an LLC
I.      INTRODUCTION

                                                   -- PAGE 15 --
       (A) Comparison to Corporations
       (B) Sale v. Liquidation

II.    CURRENT DISTRIBUTIONS OF CASH AND MARKETABLE SECURITIES NOT IN EXCESS OF BASIS
       (A) LLC
       (B) Members
       (C) History

III.   CURRENT DISTRIBUTIONS OF CASH AND MARKETABLE SECURITIES IN EXCESS OF
       MEMBER’S BASIS
       (A) General Rule
       (B) Treatment of Unrealized Receivables and Inventory

IV.    CURRENT DISTRIBUTIONS OF PROPERTY OTHER THAN CASH AND MARKETABLE SECURITIES
       (A) The General Rule
       (B) Tax Basis
       (C) Allocation of Basis
       (D) Subsequent Sale
       (E) Disproportionate Distributions

V.     THE MEMBER’S TREATMENT OF DISTRIBUTIONS IN LIQUIDATION OF A MEMBER’S INTEREST
       (A) Methods of Liquidation
       (B) Tax Treatment
           (1) Sale of an LLC Interest
           (2) Liquidation of an LLC Interest

VI. TREATMENT OF DISTRIBUTIONS IN LIQUIDATION OF A MEMBER’S INTEREST

VII. CHARACTERIZATION OF PAYMENTS TO A MEMBER
     (A) Timing
     (B) Continuation of a Liquidating Member
     (C) Allocation
     (D) Valuation

VIII. DISTRIBUTION IN COMPLETE LIQUIDATION OF THE LLC
      (A) Termination
          (1) Discontinued Operations
          (2) Sale or Exchange of a 50% Interest
          (3) Disposition of Entire Interest
          (4) State Law
          (5) Termination Date
      (B) Tax Ramifications of Termination
          (1) Closing of the Tax Year
          (2) The LLC Elections Terminate
          (3) Realization of Gain or Loss
          (4) Depreciation Recapture and Acceleration of Installment Obligations
          (5) Basis of Property Received

IX. SUMMARY

ENDNOTES

                                                 -- PAGE 16 --
                                             CHAPTER 21

           Purchase or Sale of an LLC Member’s Interest (Partnership Classification)

I.     TAX EFFECTS ON SELLER
       (A) Basis Computation for Selling Member
           (1) Adjusted Tax Basis
           (2) Deficient Capital Account
       (B) Holding Period of Selling Member
           (1) Purchase
           (2) Capital Contribution
       (C) Determination of Selling Member’s Income to Date of Sale
           (1) Tax Year
           (2) Computation

II.    TAX EFFECTS ON PURCHASER
       (A) Tax Basis
           (1) Purchaser’s Tax Basis
           (2) LLC’s Tax Basis
       (B) Income Tax Consequences
       (C) The Purchaser’s Optional Adjustment
           (1) The General Rule
           (2) Making the Optional Adjustment Election
           (3) Revocation of Election
       (D) Special Rule on Distributions to Purchaser
           (1) Making the Election
           (2) Required Election

III.   TAX EFFECTS ON REMAINING MEMBERS
       (A) Effect on the LLC
           (1) Termination of the LLC
           (2) Continuation of the LLC
       (B) Tax Treatment of Members if LLC is Deemed Terminated
IV.    SUMMARY
ENDNOTES
                                             CHAPTER 22
                             Unified Partnership (LLC) Audit Procedures
I.     TEFRA
II.    LLCs SUBJECT TO THE UNIFIED AUDIT PROCEDURES
III.   THE CONSISTENCY REQUIREMENT
IV.    THE TAX MATTERS PARTNER (TMP)
V.     PARTNERSHIP (LLC) ITEMS
       (A) Definitions
           (1) Specific Partnership Items
           (2) Factors That Affect the Determination of Partnership Items
       (B) Application

                                                   -- PAGE 17 --
VI. THE INITIAL AUDIT PROCEDURE
    (A) Commencement of the Audit
    (B) Preliminary Audit
    (C) Withdrawal
    (D) Notice
        (1) Notice Partner
        (2) Five Percent Notice Group
VII. THE AUDIT
     (A) The Revenue Agent
     (B) Closing Conference
     (C) Revenue Agent’s Report
     (D) IRS Review
     (E) The Sixty-Day Letter
VIII. THE APPEALS CONFERENCE
      (A) Attendance
      (B) Purpose
      (C) TMP Powers
IX. THE FINAL PARTNERSHIP ADMINISTRATIVE ADJUSTMENT (FPAA)
    (A) Notice
    (B) Assessment
    (C) Tax Court Petition
    (D) Other Petitions
X.   SUMMARY
ENDNOTES
                                             APPENDICES

APPENDIX I          AGREEMENTS (See accompanying CD for all forms)
      LLC Member Control Agreement
      Single Member LLC Operating Agreement, Member-Managed
      Single Member LLC Operating Agreement, Manager-Managed
      Multiple Member LLC Operating Agreement, Member-Managed
      Multiple Member LLC Operating Agreement, Manager-Managed
      Short Form LLC Operating Agreement
      Single Member LLC Operating Agreement, Manager-Managed Asset Protection
      Multiple Member LLC Operating Agreement, Manager-Managed Asset Protection
      Single Member LLC Operating Agreement, Manager-Managed Individual Retirement Account (IRA) as Owner
      Multiple Member LLC Operating Agreement, Manager-Managed Individual Retirement Account (IRA) as Owner
      Waiver of Notice and Consent to Holding of First Meeting of Organizer(s) and Member(s) of LLC
      Minutes of First Meeting
      Waiver of Notice and Consent to Holding of Special Meeting of Member(s) and/or Managers(s) of LLC


                                                  -- PAGE 18 --
     Minutes of Special Meeting
     Waiver of Notice and Consent to Holding of Annual Meeting of Member(s) and Managers(s) of LLC
     Minutes of Joint Annual Meeting

APPENDIX II        STATE STATUTES

APPENDIX III       SELECTED PROVISIONS OF THE INTERNAL REVENUE CODE AND REGULATIONS

APPENDIX IV        TABLE OF CASES


                                              INDEX




                                              -- PAGE 19 --

								
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