Practice Test 3

AA LLC is classified as a partnership and has two members, A1 and A2. In Year 1, AA LLC makes a nonliquidating distribution of land (fair market value $50,000; LLC’s adjusted basis $20,000) to A1; A1’s outside basis immediately before the distribution is $35,000, and there is no cash distributed. Under Internal Revenue Code sections 731 and 732, what is the most appropriate treatment of the distribution to A1?

BB LLC is a domestic multi-member LLC classified as a partnership. The members want the LLC to be taxed as a C corporation effective the beginning of Year 2. Which action is generally required to change the LLC’s federal tax classification to a corporation under the entity classification ("check-the-box") regulations?