Sale of LLC units

[Linda Mathey]

I have a new client that held 18% of the units in an LLC for two years. He made no cash contributions and did not sign on any debt. The first year there was a loss. Not deductible to him since he has no basis. The second year (2007) there was a loss up thru the time he sold his units for $85,000. Since his basis was zero I assume the sale of units is capital gain.

What happens to the losses? He had another accountant tell him that he can use them to offset the gain on the sale of the units.

I am not certain how to handle since I have never had this situation where the losses were suspended due to lack of basis and then the units sold.

Any comments would be appreciated.

[RoyDaleOne]

There comments:

1. He must have been a non-managing member, or a non-active individual to not basis from the liabilities of partnership.

2. Suspended losses offset the income from sale of his interest in the LLC.

3. Did the partnership have any hot assets?

I will leave you with this.