On Liquidation Tax Matters, Partner Would Not Receive Any Proceeds, Interest Received Would Be Nontaxable Profits Interest

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Court Case Digests
May 3, 2023

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6163 Loan Brokers
522310 Mortgage and Nonmortgage Loan Brokers
federal taxation
appraisal, liquidation, arm's length, operating agreement, accuracy penalty, distributions, provide a service, fair market value
ES NPA Holding, LLC v. Comm’r
T.C. Memo 2023-55; 2023 Tax Ct. Memo LEXIS 55
US
Federal Court
Federal
United States Tax Court
Weiler

Summary

The Tax Court ruled that the class C units were a profits interest because, when applying the fair market value of the LLC at the time of receipt, the partner would not receive any proceeds from a liquidation at that time. Any proceeds in excess of fair market value would be speculative. No accuracy penalty was appropriate either.

See Also

ES NPA Holding, LLC v. Comm’r

Full Text of Court Cases
May 3, 2023

The Tax Court ruled that the class C units were a profits interest because, when applying the fair market value of the LLC at the time of receipt, the partner would not receive any proceeds from a liquidation at that time. Any proceeds in excess of fair market value would be speculative. No accuracy penalty was appropriate either.