b. if connie receives a 5 percent profits interest only, how much income must she report, and what is her tax basis in the llc interest?

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24-11-2022
Business

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b. if connie receives a 5 percent profits interest only, how much income must she report, and what is her tax basis in the llc interest?

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Diatrhi Diatrhi · Answer 1 · 2022-12-08T13:35:05+01:00

Connie must report her income as $0 and her tax basis in the LLC interest is $1,250, when the current fair market value of Winterhaven's capital is $270,000.

LLC Interest or membership interest is ownership in a limited liability company or LLC. LLC interest is a percentage of the company's capital in its LLC agreement.

Because Connie received compensation in a form of 5% profits interest. Hence, she will not report any income. The tax basis will be equal to her share of LLC debt, which is 5%. BC debt is nonrecourse allocated using profits interest:

BC debt = 5% x %25,000 (A/P)

BC debt = $1,250

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Complete Question:

Connie recently provided legal services to the Winterhaven LLC and received 5 percent interest in the LLC as compensation. Winterhaven currently has $43,000 of account payable and no other debt. The current fair market value of Winterhaven's capital is $270,000.