Hi All,

I have a situation, which I am sure has already been addressed on here (haven't been able to find the answer yet), of a member of an LLC who sold his membership interest for $1 and left a positive capital account balance of 100k when sold his membership interest to the other partners (no liabilities on the books). To make a long story short, LLC with 2 partners A and B- A loans 500k to the business and B contributes no dollars but the know how and contacts of the business concept. They struggled to get along together after 2 years, he decided to sell his membership interest for $1 and recuperate some of the money loaned (and the remaining loan balance was converted to capital as part of the sale of the LLC interest). the positive capital account balance when he sold was 200k (part of the litigation was he could not repay himself for a while and so as part of the sale agreement he could repay himself an extra 100k) .

1- the positive capital account balance on the books and K-1 is transferred to the other partner correct? just a book adjustment I know , does not really reflect outside basis.

2- is there a situation where the remaining positive capital account balance creates taxable income for the other partner?

3- how does the selling partner's remaining positive capital account balance affect the other partner? He is assuming basis of assets he as never bought or invested in- so his outside basis is still zero?

4- the partner sold his interest and another partner quickly came in right after so it is NOT a termination of LLC.

Thank you!