REV. RUL. 99-5

By , May 20, 2015 12:27 pm

It often happens that individuals who are members of single-member LLCs taxable as sole proprietorships want to take on a partner in their LLC (technically, a new co-member).  This seemingly simple process can trigger significant federal income tax issues.  The issues are addressed—controversially—in an IRS administrative ruling designated Rev. Rul. 99-5.

If you have a client in the above situation, you or your tax colleague should study Rev. Rul. 99-5 carefully in planning how to handle the situation.  Here is a link to the ruling:

Here is a link to a very useful AICPA comment on the problems in the ruling:


By , May 18, 2015 2:03 pm

The concept of minority member oppression is key in LLC business organization law in most states.  The attached new blog post by Peter Mahler discusses the concept in the context of a dissolution under New York statutory LLC law, but his discussion also makes several points useful to people whose LLC practices, like mine, are primarily focused on planning, negotiating and drafting operating agreements.

You can read his article at


By , May 15, 2015 5:23 pm

For those who form Delaware LLCs or who may want to form them in the future, here is another good discussion of Delaware’s new Rapid Arbitration Act:


By , May 13, 2015 11:18 am

The link below is to the latest blog post in Peter Mahler’s excellent blog website on business divorce.  The post cites a very useful IRS manual on discounts for lack of marketability (“DLOM” which I’d never known about until I read Peter’s post), and it contains much other information about DLOM and related matters.

I’m a planner and drafter, not a litigator, but I know that Peter’s post will be useful background for me in drafting price provisions in LLC operating agreement buy-out provisions.

Here’s the link:


By , May 12, 2015 1:21 pm

The blog post under the link below doesn’t talk about LLC tax or law, but it contains what seems to me very practical advice for closely-held family-owned LLCs that want to retain both family and non-family talented staff.

Here’s the link:


By , May 11, 2015 1:50 pm

The post under this link – – will primarily interest Kentucky lawyers and accountants.  However, it should also interest lawyers and accountants in other states who are interested in the reform and improvement of statutory business organization law in their jurisdictions.  Obviously, and impressively, in Kentucky, these are key legislative commitments.


By , May 7, 2015 1:08 pm

Passive loss issues arise all the time in LLC tax practice.  The link below provides an excellent plain-English discussion of these issues.  The source of the discussion is a fine tax blog called “Tax Law for the Closely Held Business.”

Here’s the link:


By , May 6, 2015 1:19 pm

Here is a link to yet another comment, this one by Peter Mahler, on the rather astounding Delaware Court of Chancery Carlisle equitable dissolution case:

Personally, I think the facts in Carlisle were so unusual that it is unlikely that the case will have a broad impact.  (Famous last words?)


By , May 5, 2015 1:14 pm

In case you’re intrigued with the issue of petitions for “equitable dissolutions” of LLCs by “mere assignees” (admittedly a pretty rarified topic), Kurt Heyman, the partner of Vern Proctor (the co-author of my Wolters Kluwer book) has the following brief discussion (in quotes) about the Carlisle case, which addresses the issue.  Kurt handled the case in the Delaware Court of Chancery.

Delaware Court of Chancery Recognizes “Equitable Dissolution” of LLCs

The Court of Chancery, per Vice Chancellor Laster, just issued an Opinion (attached) denying a motion to dismiss the petition for dissolution in In re Carlisle Etcetera LLC, C.A. No. 10280-VCL.  This decision appears to be the first in Delaware to provide strong support for the concept of “equitable dissolution” of LLCs.

The respondent, Tom James Company, moved to dismiss on the grounds that the petitioners lacked standing to seek judicial dissolution under Section 18-802 of the LLC Act, because neither was a member of the LLC as a result of (a) the LLC agreement’s silence on the issue of assignments and (b) the original member’s (WU Parent) assignment of its interest to its wholly owned subsidiary (WU Sub).  (See Section 18-702 of the LLC Act regarding the effect of assignments where the LLC agreement is silent on the issue.)

The Vice Chancellor agreed with Tom James’ argument, notwithstanding the fact that Tom James was aware of the assignment when it occurred and treated the assignee as a member, and therefore held that the petitioners lacked standing to seek judicial dissolution under Section 18-802.

However, in a lengthy analysis of the Court’s equitable jurisdiction, the Vice Chancellor found that the assignee nevertheless had standing to seek “dissolution in equity,” and consequently denied the motion to dismiss.  The critical holding of the case is as follows:

“James argues that because neither WU Parent nor WU Sub can seek statutory dissolution under Section 18-802, this case must be dismissed. In my view, James errs in contending that Section 18-802 is the exclusive extra-contractual means of obtaining dissolution of an LLC.  Under the facts of this case, WU Sub has standing to seek dissolution in equity.”

Because the Court took pains to note that its finding was based on “the facts of this case,” a careful analysis of those facts is necessary before concluding that the decision applies to another case.


Proctor Heyman Enerio LLP represents the petitioners in this action.”


By , May 4, 2015 2:56 pm

Not only in representing clients in post-formation disputes under LLC operating agreements but also in drafting these agreements, it is important to have a clear understanding of the rules that sophisticated courts are likely to apply in construing operating agreement  provisions when the parties disagree about their meaning.  As noted in the attached post in the Morris James Delaware Business Litigation Report blog, the April 29, 2015 decision of the Delaware Court of Chancery in Hampton v. Turner provides a good catalogue of these rules as applied to the facts in that case and, more specifically, to the relevant provisions of the governing limited liability company agreement (the term for “operating agreement” under the Delaware Limited Liability Company Act).  The link to the post is: