How do I properly enter information regarding the partner-to-partner sale of a partnership interest (Class D Incentive Units) from my LLC employer? No 1099 was issued.

[kjs94gt]

I received Class D Incentive Units at hiring in 2017 at no cost to me. It was an incentive. In 2019, after a change in ownership, I sold a portion of them back to the company for x-amount. I did not receive a 1099 and was told by our General Counsel that I should report the sale as a partner-to-partner sale of a partnership interest, for which there is no 1099 reporting. I'm no tax accountant but an account at work told me we need to submit form Long Form 8949 to report capital gains. However, for just about every question the form on TurboTax asks, I don't have answers. Can any of you please point me in the right direction?

[Rick19744]

While the facts are limited, I will provide some general comments:

• While the $$ amount of the interest is not provided, regardless, this is a complicated area in which you most likely will need some professional help.
• Receiving an interest in an LLC is accomplished in two ways; capital interest or a profits interest.  You indicated that the interest was provided "at no cost to me".  This still does not answer the question as to which type of interest you received.
• If it was a capital interest, then you had a taxable event upon receipt.  These rules are complicated as well and governed by Section 83 of the tax code.
• If it was a profits interest, then this should have been clearly documented.  These rules are governed by Revenue Procedures 93-27 and 2001-43.  In general, this type of interest is not taxable if you meet certain requirements.  One of the safe harbor requirements is that the partner (member) does not dispose of the profits interest within two years of its receipt.  Well you may have disposed of a portion of the interest within a two year period; although the dates are not provided.  Regardless, someone needs to determine the impact of this transaction if within a two year period.
• You also need to determine your basis in the LLC units and this is dependent on what type of interest you have; capital or profits.
• Once you determine the type of LLC interest you have (capital or profits), you then need to determine the basis, and then you need to determine the gain on the sale.
• The gain, in general, is a capital gain to be reported on form 8949 and Sch D.  However, an additional complexity comes into play since this is a partnership.  Some of the gain can be deemed to be ordinary under Section 751 known as "hot assets".  As a result, the gain can be bifurcated between ordinary and capital.  You could also get whipsawed and end up with ordinary income and then a capital loss.
• As you can see, this is an involved transaction.  Tax transactions such as these are all complicated regardless of the $$ involved.  You need to go back to the company and get some answers to the questions above and then work through the tax implications as explained.