I am a member of the State Bar of California, the Bar of the U.S. District Court for the Central District of California, and a member of the California Association of Realtors. So, I appreciate that this issue concerns California law.
That said, your original question suggests that the client is an individual and that he was sued, and that the court awarded the LLC to the plaintiff to satisfy the judgment (though, I don't see quite how this works, from a pure legal viewpoint).
Your subsequent comments suggest that the LLC was sued. Consequently, I can't answer your question, because I don't know the actual parties in the case.
From what I can ascertain from your comments, my impression is that if the member lost the LLC in the lawsuit, then that is a 100% capital loss, identical to shares of stock that become worthless. The value of the loss would be the net value of the asset, which from what you've explained is zero. However, the date of the entry of judgment into the court register is the date of valuation, so that may or may not be true.
This is a very complicated issue. Without reviewing the actual court judgment, I'm somewhat "flying blind." But, I think that my analysis above is probably correct.
As for there being an COD income, the answer is no, if the LLC was awarded to the plaintiff, because, the member/defendant would have no ownership interest, and so no right to any income, phantom or real.
I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.
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