Capital gains and flow through tax treatment
For some reason this can result in either   the flow through income being UNTAXED or the flow through income being   taxed as a capital gains. Either way this allows a lower tax rate for   LLC profits. I'm not sure that correct. I know it has something to do   with capital accounts. This is incorrect. As to capital accounts - these are accounts representing the members/partners' capital in the enterprise, and have nothing to do with the tax treatment of the earnings. Undistributed earnings add to the capital accounts, but they're still taxed. Also, is it true that if the LLC loses money, that loss can be offset   against other taxable income resulting in a lower total taxation? It can offset taxable income of the same kind, just like any other losses on your tax return. Generally, flow-through taxation of partnerships means that the income is taxed to the partner with the original attributes. If it is capital gains - it is taxed as capital gains. If it is earned income - it is taxed as earned income. Going through LLC/partnership doesn't re-characterize the income (going through corporation - does, in many cases).
"Off the top of my head, I don't know of any publicly-traded companies that routinely earmark distributions as return of capital, but theoretically, it's certainly applicable to any publicly-traded company. The Wikipedia article gives one situation in which a publicly-traded company may use return of capital: Public business may return capital as a means to increase the debt/equity ratio and increase their leverage (risk profile). Since return of capital is a distribution, it shrinks the firm's equity, thus increasing its leverage. Investopedia also has an article, Dividend Facts You May Not Know, that gives an example of when return of capital might be used: Sometimes, especially in the case of a special, large dividend, part of the dividend is actually declared by the company to be a return of capital. In this case, instead of being taxed at the time of distribution, the return of capital is used to reduce the basis of the stock, making for a larger capital gain down the road, assuming the selling price is higher than the basis. For instance, if you buy shares with a basis of $10 each and you get a $1 special dividend, 55 cents of which is return of capital, the taxable dividend is 45 cents, the new basis is $9.45 and you will pay capital gains tax on that 55 cents when you sell your shares sometime in the future. A company may choose to earmark some or all of its distribution as return of capital in order to provide shareholders with a more beneficial tax treatment. The IRS describes this different tax treatment: Distributions that qualify as a return of capital are not dividends. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the basis of your stock. These distributions don't necessarily count as taxable income, except in some instances: Once the basis of your stock has been reduced to zero, any further non-dividend distribution is capital gain. The IRS also states: A distribution generally qualifies as a return of capital if the corporation making the distribution does not have any accumulated or current year earnings and profits. In this case, the firm is lowering its equity because it's paying distributions out of that equity instead of accumulated earnings/profits. A company may use return of capital to maintain a distribution even in times of financial difficulty.  In the context of closed-end funds, however, return of capital can be much more complicated and can affect the fund's performance and reputation in numerous ways. Also, JB King is correct in cautioning you that ""return of capital"" is not the same thing as ""return on capital*. The latter is a method for valuing a company and determining ""how efficient a company is where it comes to using its resources."" (to quote JB King's comment again)." "You should contact the company and the broker about the ownership. Do you remember ever selling your position? When you look back at your tax returns/1099-B forms - can you identify the sale? It should have been reported to you, and you should have reported it to the IRS. If not - then you're probably still the owner. As to K-1 - the income reported doesn't have to be distributed to you. Partnership is a pass-through entity, and cannot ""accumulate"" earnings for tax purposes, everything is deemed distributed. If, however, it is not actually distributed - you're still taxed on the income, but it is added to your basis in the partnership and you get the tax ""back"" when you sell your position. However, you pay income tax on the income based on the kind of the income, and on the sale - at capital gains rates. So the amounts added to your position will reduce your capital gains tax, but may be taxed at ordinary rates. Get a professional advice on the issue and what to do next, talk to a EA/CPA licensed in New York." This question is about PROPERTY acquired before becoming a resident of the US. If you bought property before you were a resident, and sold it after you were a resident, then you pay capital gains tax on the whole thing. Just see if it qualifies for long term capital gains tax treatment, because it is a substantially lower tax rate. You either have a tax event or you don't, and there's nothing wrong with an audit to prove that, so don't worry too much about it (unless you have a legitimate reason to be worried). Simply having what YOU perceive as a lot of money, doesn't make the possible lack of taxes more or less serious. If he has things that have declined in value, he can sell them at a loss this year and buy identical assets immediately. This is called tax harvesting and creates a loss that can offset capital gains tax. ESPP tax treatment is complicated.  If you received a discount on the purchase of your stock, that discount is taxable as ordinary income when you sell the stock.  Any profit about the market value when the stock was purchased is taxed based upon the holding period of the stock. If you have held the stock less than a year, the profit is taxed at your marginal tax rate (ie taxed as ordinary income). If the stock is held for more than a year, it is taxed at a special capital gains tax rate, which ranges from 0-20% depending on your marginal tax rate (most people pay 15%). "I don't think its a taxable event since no income has been constructively received (talking about the RSU shareholders here). I believe you're right with the IRC 1033, and the basis of the RSU is the basis of the original stock option (probably zero). Edit: see below. However, once the stock becomes vested - then it is a taxable event (not when the cash is received, but when the chance of forfeiture diminishes, even if the employee doesn't sell the stock), and is an ordinary income, not capital. That is my understanding of the situation, do not consider it as a tax advice in any way. I gave it a bit more though and I don't think IRC 1033 is relevant. You're not doing any exchange or conversion here, because you didn't have anything to convert to begin with, and don't have anything after the ""conversion"". Your ISO's are forfeited and no longer available, basically - you treat them as you've never had them. What happened is that you've received RSU's, and you treat them as a regular RSU grant, based on its vesting schedule. The tax consequences are exactly as I described in my original response: you recognize ordinary income on the vested stocks, as they vest. Your basis is zero (i.e.: the whole FMV of the stock at the time of vesting is your ordinary income). It should also be reflected in your W2 accordingly." How would I go about doing this? Are there any tax laws I should be worried about? Just report it as a regular sale of asset on your form 8949 (or form 4797 if used for trade/business/rental). It will flow to your Schedule D for capital gains tax. Use form 1116 to calculate the foreign tax credit for the taxes on the gains you'd pay in India (if any). "You don't offer any specifics, so I'm guessing a little about what you're talking about, but here's a few thoughts: Remember that all tax-related transactions are reconciled when you file. All of your activity for the year is totaled up and (for the most part) when during the year things happen is irrelevant.   Your gross taxable income is calculated (which will exclude any ""pre-tax"" activity, deduction applied (which will any include and ""post-tax"" deductions), tax liability calculated, and withholdings subtracted to get your net tax due.  Whether you have ""pre-tax"" activity and less tax withheld or ""after-tax"" activity with a deduction and reduce your net tax, the net effect should be the same." "You should check with your broker for details, but you can generally specify which ""lot"" you are selling.  where I've seen it, that's done by concurrently sending a ""letter of instruction"" documenting your choice of lot concurrent with the sale, but different brokers may handle this differently.  I would think this should work for the case that you describe. (In addition, the default rule used by your broker is ""probably"" first-in-first-out, which will do what you want here.) Note that this may come into play even in a margin account to the extent that you might want to specify a lot in order to obtain (or set yourself up for later benefit of) favorable tax treatment under the long-term capital gains rules"