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membership interests from Dr. Joffe to Dr. McKernan and Ms.
Moore. Petitioners cite section 8.5 of the LLC operating
agreement as permitting interim distributions not in accordance
with the recipients’ membership interests. In further support of
their argument, petitioners rely on the following language taken
from a footnote to the LLC’s financial statements for 1997 and
1998, which were reviewed by the LLC’s outside accountants
Tarpley & Underwood, P.C.:
as a part of * * * [a] refinancing [of long-term debt],
one of the members [Dr. Joffe] refinanced other debt,
on which the member and the * * * [LLC] are
contingently liable in the amount of $3,054,972 at
December 31, 1998. Principal and interest payments may
be paid personally by the member by distributions from
the * * * [LLC]. Proportionate cash distributions will
be made to other members of the * * * [LLC].
We do not agree with petitioners that the foregoing
accountant’s language describes a disproportionate increase in
the distributions to Dr. McKernan and Ms. Moore and a
corresponding disproportionate decrease in the distributions to
Dr. Joffe. In fact, the reference to “proportionate cash
distributions * * * to other members” is consistent with the
notion that Dr. McKernan and Ms. Moore were to receive interim
distributions proportionate (not disproportionate) to their
membership interests.13 Moreover, section 8.5 of the LLC
13 Assuming arguendo that the enhanced financial benefit to
Dr. McKernan and Ms. Moore was motivated by the LLC’s potential
responsibility for Dr. Joffe’s personal debt, as argued by
(continued...)
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Last modified: November 10, 2007