LLC Liquidation issues

[Tax Bird]

I have a client who was a member of an LLC. 2007 was the final year but he has yet to receive a final K-1. TP wants to get his filing in and amend later if necessary.

My question regards how to estimate what would be on the K-1?

Consider the following:

As of the 2006 year end, he had a small amount of suspended losses due to basis limitations.

He received a six-figure liquidating distribution which tells me the LLC got some $$ in their final year.

I am inclined to just report the liquidating distribution net of the suspended loss as a long term capital gain and then attach a statement indicating that we're filing based on an estimate and what the $$ amount represents.

However, I do know that the $$ into the LLC was not from operations (it was a lawsuit settlement - yes, another one!). Since the lawsuit $$ is taxable, (trying to envision the accounting) it would be reported in 2007 (net of CY expenses, etc) as ordinary income, yes?

My TP had no basis as of the end of last year. The $$ in would have restored basis and then his postion was liquidated.

This is the part where I lose my mind.

How do I report this? It can't be both ordinary income AND cap gains can it?

Any advise here on how I untangle my brain would be greatly appreciated!

[joelgilb]

Suggest you wait for the K-1 and get the client on board with that.

One way may be to tell him that pending the K-1 you have to be conservative to avoid penalties etc and consider everything he got as Ordinary Income subject to Self Employment tax. The numbers alone may be enough to deter him.

I am essentially dealing with similar issues with a client have had done similar things and by letting them see how much it would cost they calmed them and made them willing to wait.

[RoyDaleOne]

Without access to the K-1 or the partnership record, how can you do the return?

However, I would guess the income from the lawsuit is ordinary and there will be no capital gains.

Zero basis start of year.

Plus income

Minus distributions

---- My guess is zero basis end of year.

[Tax Bird]

Without access to the K-1 or the partnership record, how can you do the return?

However, I would guess the income from the lawsuit is ordinary and there will be no capital gains.

Zero basis start of year.

Plus income

Minus distributions

---- My guess is zero basis end of year.

You know, this *just* occurred to me. Must be all those years with Jackie Stallone and Dionne!

Thank you (both) very much.