He isn't selling an "interest" as such because he is a sole proprietor (I presume). The sale price must be allocated among each asset. Some may have a loss of one kind or another, others a gain.
If, as you say, your client has a negative equity in his SMLLC, there must perforce be some liability involved. The determination of the taxpayer's gain on the sale of an interest in his sole proprietorship will need to take into account how this existing debt will be shared by the two owners of the *newly* created partnership, when the SMLLC becomes a MMLLC, upon the sale of a 45% interest.
Which should raise the question: 45% interest *in what*?
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