LLC Shares Payout

[KayBee412]

I was forced out of an LLC in Q1 2023. My relationship to the LLC was legally over by Q2, but it took until Q1 of 2024 for them to pay out my remaining shares. 

I realize I have to pay taxes on the share payout. Is that a 1099 disbursement or some other IRS form?

They're now asking me, nearly two years after forcing me out, to submit a new W-9. Am I required to do so? This smells suspicious.

[KeshaH]

The W-9 request is legitimate. The partnership would need it to properly report your payout either on a Form 1099-NEC or final Schedule K-1. 

The buy-out itself isn't generally income. Instead, you'll need to determine if you have a gain or loss on the liquidation. To calculate that, you'll need to know your "basis" in the business (your after-tax investment + your share of the profits less any distributions you received over the years - assuming this was a partnership LLC). 

If the payment was less than your basis, you'd report a loss.

If the payment was more than your basis, you'd report a gain.

This would typically be reported on Schedule D and Form 8949 as a capital gain or loss, much like selling any other investment.

Your 2023 Form K-1 might affect your final basis calculation, so you'll want to have that available.