LLC was a thriving business. A few years ago, we started treating it as a hobby. It is finally terminating.
99% member received all assets - old inventory and mostly fully depreciated assets. All assets are old and outdated. There are no other assets.
After all distributions, 99% member has a $20,000 capital account. 732(c)(1) causes that amount to NOT be allocated among the assets received in the liquidating distribution since they are ordinary income assets.
The activity is no longer trade/business, so I think the $20,000 remaining is a nondeductible, personal loss.
The 1% partner has a $20,000 negative capital account and relief of debt this year, so I'm guessing that he has income, but it's not my issue since he's not a client.
Do I have Sec 751 issues? I don't think so. Initially, I thought I had to do a statement under 1.751-1(b)(5). However, 751(b) and 1.751-1(b) both say that this section applies if the partner receives Sec 751 property in exchange for his interest in other property. There isn't any other property.
Am I on the right track? Thanks for your comments.