LLC profit/loss distribution in case of mid year ownership change


1

I understand that profit/loss is distributed among the LLC owners according to their ownership stakes.

What about if profit/loss if the ownership stakes change? Say for example, there are 3 owners, each with 1/3 share. Starting July 1st, the stakes change so that 2 owners have 25% each and one owner has 50%.

At the end of the year it turns out that the company had a loss of $10,000.
How is this loss distributed on the K1 form, given that the change in ownership stakes occurred mid-year?

Thank your any input.

LLC Tax

asked Feb 26 '12 at 15:49
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Timecapsule
6 points
  • A missing detail: the LLC reports profit/loss as a partnership – Timecapsule 8 years ago

1 Answer


2

One way to do this is to compute the P&L for the first six months of the year separately from the second six months and then allocate the losses based upon the ownership in each period (since the ownership changed at the end of the first six months).

So for example if you lost $60,000 in the first half and $40,000 in the second half
then 1/3 of $60,000 is $20,000 and 1/4 of 40,000 is 10,000.

So the partner that now has 50 percent would get $20,000 + $20,000 = $40,000 in losses.
The 25% partners would each get $20,000 + $10,000 = $30,000 in losses.

The total losses allocated still total to the original $100,000.

answered Feb 28 '12 at 22:21
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Jonny Boats
4,848 points

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LLC Tax