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LLC making LOC payments for note in name of member

Taxpayer & spouse have 50/50 LLC that owns real estate. The LLC has been making payments for a LOC used to purchase the real estate and it is in the name of the Spouse. LLC is deducting interest on the note and interest income is being recognized on their 1040.

LOC is being carried on the balance sheet of the LLC as a loan from a third party.

1) Is this an appropriate scenario given the parties are related?

2) Should a promissory note be in place to support how these transactions are being handled for tax purposes?

Thanks in advance for your help!



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