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Abstract: 

While some special allocations do not have substantial economic effect, others do not express the parties’ true agreement. Tax professionals involved in reviewing drafts of LLC agreements now have another issue. Imprimis Investors LLC v. U.S. has just established that “ordinary income” cannot be read to include “short-term capital gains” for purposes of an investment agreement in the form of an LLC. Just on these facts, this result seems to be in line with common sense. However, this decision does provide considerations for planning investment transactions more effectively. This decision emphasizes then how important tax professionals’ involvement is early in the negotiating and the drafting process for LLC agreements.

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Affiliations:  1: Western Illinois University.