I'm not too familiar with IRS regulations, but isn't a taxpayer required to disclose income from a partnership? If I'm not mistaken the LLC must issue a K-1 (similar to a 1099) to both the taxpayer/partner and to the IRS. But Reid treated this property as if it were a personal holding. Did he report (to the IRS and/or the Senate) that this was income from the LLC or did he report it as a personal long-term capital gain?
The article does not state how Reid treated this transaction in his IRS filings, which would be unavailable to anyone except with Reid's permission. He could well have done the IRS filings properly, while failing to properly document the transfers in his Senate filings, which are public. Again, these are all issues for further investigation.