My client is a 4 person LLC and on the books is an installment receivable of $500,000 with a deferred gain liability of $150,000 and also equipment with cost of 100,000 and accumulated depreciation of $25,000.
The client wants to do a complete liquidation and distribute the installment receivable, deferred gain liability and equipment out to the 4 members.
Question 1: will the distribution of the installment obligation be considered a disposition at the LLC level and cause the deferred gain to be recognized at the LLC level and then passed thru to the members as income, or can the members receive the instalment note and deferred gain and pay tax as the note is collected?
Question 2: will the LLC have to recapture any depreciation on the equipment on distribution since depreciation is considered as a hot asset under Section 751(when the equipment is distributed disproportionately, which it will be, not IAW with the ownership %'s)?
Thanks for any help.