Actually if two of the three members sell their interest and there is only one member left, it is an actual termination instead of a technical termination; this is a Section 708(b)(1)(A) versus a 708(b)(1)(B).
A complete response is beyond this forum as selling a partnership interest is like selling your share of the underlying assets. As you will see upon reading the publication noted by TT Richard, this can be a complicated area and often either not understood or handled incorrectly.
The other fact not disclosed is who bought out their interest. Based on what I currently see in the facts, it appears that this entity is no longer a mutli-member LLC and that is why I indicated it appeared to be a complete termination instead of a technical termination. If the facts are different, and it continues on as a multi-member LLC, than it may very well be a technical termination.
The general rule is that upon disposition of your LLC interest, the member would compare their proceeds to their basis in their LLC interest. The difference is capital gain or loss. Where this gets complicated, is some of the gain could be recharacterized as ordinary income (hot assets) in lieu of capital gain. It can also result in recognition of ordinary income and a capital loss. This determination is made at the member level and not the LLC level. As such, the impact is handled directly on their respective 1040 and applicable schedule.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
