Brooklyn, NY asked in Tax Law for New York

Q: Do I need to be concerned about rules similar to Golden Parachute for LLCs?

I know that entities like LLCs, partnerships, and tax-exempt organizations aren't subject to the golden parachute payment rules.

However, if one was selling their LLC and was to give a member or independent contractor a percentage of the sale proceeds, would it just be taxed as ordinary income? Is there an analogous rule for LLCs like the Golden Parachute for corporations? In this scenario, a member, who also acts as an independent contractor by doing work for the LLC, is to receive a percentage of the sales proceeds of the LLC. How would this be taxed?


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1 Lawyer Answer

A: Consult with an accountant and attorney.

In general any payments or distributions are counted as regular income payments.

To avoid or defer taxes you may need to establish other mechanisms in place at your company.

May not be worth if the amount in discussion is not big enough.

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