Tom, Tina, Tatum, and Terry are equal owners in the 4-Ts LLC, a cash basis service entity. 4-Ts has unrealized receivables of $400,000 (basis of $0), and no other hot assets. A goodwill payment of $50,000 per partner is provided for in the LLC's operating agreement. If 4-Ts distributes cash of $300,000 to Tom in liquidation of his LLC interest, which of the following statements is correct?
A)This is a proportionate distribution with respect to hot assets.
B)The $50,000 payment that relates to LLC goodwill cannot be deducted by the LLC.
C)The partnership will terminate.
D)The $150,000 § 736(a) payment will result in a capital gain to Tom.
E)The $200,000 § 736(b) payment will be taxed to Tom as ordinary income.

Question

Quizplus · Accepted Answer

The $50,000 payment that relates to LLC goodwill cannot be deducted by the LLC because it is considered a capital expenditure.

Tom, Tina, Tatum, and Terry Are Equal Owners in the 4-Ts