Single member LLC sold 5% of his business to a new member. It is paid to him as personal (per the attorney). He rents everything, no assets. How do I handle the sale?

Forum|Forum|6 years ago
December 7, 2019
25 replies
343 views

Again per attorney, original owner will lend the new "partnership" the money to open a new location. The new member has to forgo his draws up to the amount of that loan before he can "take" a draw based on profits.

So on the original owners 1040, the money received has no basis. He says "it's the right to come in on a good business". Are we talking "goodwill" here?

Thank you.

ProSeries Basic

This topic has been closed for replies.

Best answer by George4Tacks

You really need to get the answer to this from the attorney and the paid tax professional that is involved. To me, your description makes no sense. It really started to sound like a sale of a partnership interest which may or may not have basis, but then some other right comes into play.

If you are a paid preparer, get a really large retainer before taking this mess on.

George4TacksAnswer

Level 15

You really need to get the answer to this from the attorney and the paid tax professional that is involved. To me, your description makes no sense. It really started to sound like a sale of a partnership interest which may or may not have basis, but then some other right comes into play.

If you are a paid preparer, get a really large retainer before taking this mess on.

Answers are easy. Questions are hard!

L

linette

Level 6

Yes I agree that you need to make sure you are understanding what the attorney has done. You don't say the tax filing of the LLC prior to this change. If it is a single owner LLC what is sounds like is that the single owner LLC is converting to a partnership. Money going directly to the original owner is not making sense and may or may not be a sale to the original owner. But, once the partnership is formed then the original owner will loan the partnership money. They agree no draws on profits will be taken until the loan is paid off.

Since the attorney is involved, you should have a partnership agreement that spells all of this out. Ask the client for a copy of the partnership agreement. Then tread lightly on what returns and what work you are willing to do until you understand the ramifications of that work.

Sign up

Login with SSO

Let's get you signed in

Login with SSO