Question

Mr. A formed LLC, he has Account Receivable worth $50,000 for tax preparation fees, and an interest in a real estate partnership used as collateral for a loan from Bank, The fair market value of the real estate partnership interest is $500,000 and the loan is for $200,000.

1. What is the basis of the LLC? Is it $250,000?

2. If his son works in this LLC and gets 50% of the shareholder interest, Is it the basis for his son is 50% of FMV shares.

3. Is it Mr. A's LLC basis doesn't change and can deduct expenses from LLC's Ordinary gain?

Answer 1

LLC stands for the limited liability partnership.

1. The basis of LLC is the amount that is put in the business to start or acquire the business. This is the sum of those amounts that are put by the person to start the business or to acquire the business.

So in this case the basis of the LLC will the amount of loan and the account receivables.

Hence yes the basis of LLC is 250K as this is the amount that is currently in the LLC.

1. Yes, if his sons joins then the basis will the FMV of the share of the business. This is because of the fact that the LLC is considered as an separate legal entity and has a value that is same as FMV
2. Yes, the expenses of LLC can be deducted from the ordinary gain provided the expenses are fair and reasonable and are incurred with the purpose of earning gain.

The salaries that are paid to the non-members of the LLC are deductible provided the salaries that are paid are fair and are reasonable.