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Richard
Richard, Tax Attorney
Category: Tax
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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if an LLC holds stock received thru a Rule 351(a) transaction,

Resolved Question:

if an LLC holds stock received thru a Rule 351(a) transaction, is the stock that is distributed from the LLC to its members a taxable transaction?
Submitted: 5 years ago.
Category: Tax
Expert:  Richard replied 5 years ago.

Good morning. In general, if this is a non-liquidating distribution and the LLC is taxed as a partnership, the distribution of the stock will not be a taxable event, but will simply reduce the recipients' basis in their respective ownership interests in the LLC.

 

 

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Please be aware that the information provided here is not legal advice. Rather it is simply general information. All states have intricacies in their laws and any information given is simply information only and specifically is not intended to be, nor does it constitute, legal advice. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Customer: replied 5 years ago.
Follow up question - the stock that the LLC holds is stock in a publicly traded company, so the stock is an asset that the LLC holds. If the basis for the stock is zero and each of the 3 members agrees to distribute 500,000 shares each to hold in each of their individual names, instead of the LLC holding these shares, would the transaction still be a non-taxable event? I realize that if a member sells this stock once they hold it individually and has a capital gain, then that transaction would be taxed at the current capital rate of 15%.
Expert:  Richard replied 5 years ago.
If these are publicly traded securities, then they are treated as money. A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property.
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Customer: replied 5 years ago.
I understand your response above. What if the securities are restricted 144 stock? Does still still equate to "marketable securities treated as money" or not? The restriction will meet its removal requirements on Dec 16, 2011, therefore making the shares marketable on Dec 17, 2011.
Expert:  Richard replied 5 years ago.
At this point, I'll opt out and let another expert help you. Take care.

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