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Posted by aufein on November 27, 2006, 8:08 am
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spshaffer@adelphia.net wrote:
> Good Morning All,
>
> We have a situation we have a member that is contemplating
> leaving the business (a Virginia LLC).
>
> I have always assumed that the method would be for the LLC
> to buy their stock back and they (in turn) would pay cap
> gains on that.
>
> Q: Is the "buyback" an expense for the LLC?
>
> Q: What are some other strategies for "an exit" that would
> minimize the tax burden on the person leaving, as well as
> maximize the transaction for the LLC (and the rest of it's
> members)?
The answer depends on how LLC is treated for Federal Income
tax purposes. I assume that LLC is treated as a partnership
for US Federal income tax purposes since there are multiple
members unless you made a check the box election to treat is
as a C corp. Can we assume that two or more members are
left. If so, redemption of LLC's interest is treated as
liquidation of the partnership interest that is generally
tax free (under certain conditions it is not). If you made a
C corp election then such redemption in complete
liquidation of the shareholders interest is treated as a
sale or exchange of stock for the fair market value (Sec.
302)
Please note that you should inquires as to the tax treatment
of the LLC under Virginia state law as it may not
necessarily follow the federal tax treatment.
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