My client is a member of a LLC based in California taxed as a partnership (2 partners) that was created several years ago. She has 75% of the total interest and her partner has the other 25%. There is a company interested in purchasing the LLC assets (client database, technology platform).
My question is: how is this going to be taxed to my client if the partners just changed the LLC agreement to allocate the interests 95% to my client and 5% to the other partner? I would think that this could be taxed as long term capital gain, since they owned the LLC for a few years, although they acquired the client base over the years. The money spent in technology was deducted as a current expenses (not sure if it should have been capitalized).
Will part of the gain be taxed as ordinary income to my client since she just acquired more interest in the LLC?
Thank you for your help