Question

Barney, an individual, and Aldrin, Inc., a domestic C corporation, have decided to form BA LLC. The new LLC will produce a product that Barney recently developed and patented. Barney and Aldrin, Inc., will each own a 50% capital and profits interest in the LLC. Barney is a calendar year U.S. taxpayer, while Aldrin, Inc., uses a July 1–June 30 fiscal year. The LLC does not have a “natural business year” and elects to be taxed as a partnership.
a. Determine the taxable year of the LLC under the Code and Regulations.
b. Two years after formation of the LLC, Barney sells half of his interest (25%) to Aldrin, Inc. Can the LLC retain the taxable year determined in part (a)? Why or why not?

PLEASE cite the provisions of the Internal Revenue Code and/or Treasury Regulations that support your conclusion in each part. Use the full length code

examples Code Sec. 123(b)(3)(B)

  Reg. Sec. 1.341-1(C)(4)

Answer 1

Answer:-

Explanation :-

■a)Determine the taxable year of the LLC under the Code and Regulations?

●Since, both partners owns the same amount of capital and profits in the LLC, they cannot use the majority partner’s tax year; in addition, both Barney and Aldrin are principal partners, they do not have the same tax year where one is a calendar year taxpayer and the other uses fiscal year.

●This would mean that the general rules would require the partnerships to be determined by the least aggregate deferral rule.

●But since both of the aggregate number of deferral months is equal to each other, there is another alternative tax year which is the election of 52 to 53 week taxable year that ends the same week as the require tax able year.

■b. Two years after formation of the LLC, Barney sells half of his interest (25%) to Aldrin, Inc. Can the LLC retain the taxable year determined in part (a)? Why or why not?

●YES

After Barney sells half of his interest to Aldrin, Inc. I do not think that LLC can keep the taxable year determined in part (a) because now one partner owns more than 50% of capital and profits interest in the partnership.

●So, Now, Aldrin can switch to the July 1- June 30 fiscal year as the taxable year.​​