A lot has been written about two simple, straight-forward fact patterns set forth in Internal Revenue Service Revenue Ruling 99-6. Like most guidance from the Service, the devil is in the details as Reid and Riege, P.C. (Connecticut, USA) were reminded once again last month.
In the Ruling, the first scenario examines what happens when a 50/50 limited liability company taxed as a partnership, AB, LLC, becomes a disregarded entity upon A’s sale of his entire interest to B for $10,000. In the second scenario, equal members/partners C and D sell their entire interests in CD, LLC to E, an unrelated person, in exchange for $20,000 ($10,000 each). Under both scenarios, no entity classification elections are made to treat either limited liability company as an association taxable as a corporation. Applying the analysis of these two scenarios to a proposed transaction reviewed by Reid and Reige's office shows that the structuring of the transaction can result in wildly different tax results.
