Join the 9 million people who found a smarter way to get Expert help

Recent tax questions

Tax question -- profit distribution and

Tax question for LLC -- profit distribution for members and K1 info:1) We own 76% of the LLC and 12 investors own 24% for a $300K investment ($25K each). However, twice a year we pay them 76% of the profits, until they are paid off 125% of their original investment, after which time their profit share reverts to match their ownership share.1) On the 2015 K1 in box 1 (Ordinary business income) should we report the amount they were paid that calendar year 2015 (remember, the Q3/Q4 2014 check was cut in Feb 2015)? Or the amount of their profit earned for that calendar year (paid Aug 2015 and Feb 2016)?2) In box J -- should this just be 6.33% for each investor (76% / 12 investors), or should it be calculated based on the actual amounts they received for that tax year (remember, part of the amount they received was from previous year).Operating Agreement reads:1.16. “Economic Interest” means a Person's right to share in the income, gains, losses, deductions, credit or similar items of, and to receive distributions from, the Company, but does not include any other rights of a Member, including the right to vote or to participate in management. A Person's Economic Interest shall be determined as follows:(a) With respect to the Economic Interest of a Member, until occurrence of the Preferred Recapture (as defined in Section 4.1(a) hereof), a Member's Economic Interest in any given class of Interests shall be determined by a fraction, expressed as a percentage, the numerator of which is the total of the Percentage Interest attributable to that Person's Membership Interest calculated exclusive of the Percentage Interests attributable to the other class(es) of Interests, and the denominator of which is the total of all Percentage Interests of the Members exclusive of the Percentage Interests attributable to the other class(es) of Interests; provided, however, that for the purposes of this calculation, Common Interests shall be attributed a total Economic Interest of twenty-four percent (24%), and that Preferred Interests shall be attributed a total Economic Interest of seventy-six percent (76%), as set forth in Exhibit A; and(b) Upon occurrence of the Preferred Recapture, as set forth in Sections 4.1(a) hereof, and thereafter, during the period described in Section 4.1(b), a Member's Economic Interest shall be equal in number to the Percentage Interest attributable to that Member's Membership Interest, as set forth in Exhibit A.ARTICLE IV: ALLOCATIONS AND DISTRIBUTIONS4.1. The Profits and Losses of the Company and all items of Company income, gain, loss, deduction, or credit shall be allocated, for Company book purposes and for tax purposes, as follows:(a) To a Member in accordance with the Member's Economic Interest as defined in Section 1.16(a) hereof until such time as a sum of Available Cash equivalent to one hundred twenty-five percent (125%) of the total initial Capital Contributions attributable to the Preferred Interests Holders has been distributed to the Preferred Interests Holders in accordance with Section 4.6 hereof (the “Preferred Recapture”); and(b) Thereafter, to a Member in accordance with the Member's Economic Interest as defined in Section 1.16, subsection (b) of this Agreement.4.2. As used in this Agreement, “Profits and Losses” means, for each fiscal year or other period specified in this Agreement, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with IRC §703(a), including all Tax Items required to be stated separately pursuant to IRC §703(a)(1), with the following adjustments:(a) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss;(b) Any expenditures of the Company described in IRC §705(a)(2)(B) or treated as IRC §705(a)(2)(B) expenditures pursuant to Reg §1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profits or Losses shall be subtracted from such taxable income or shall increase such loss.(c) Notwithstanding the foregoing provisions of this Section 4.2, any items of income, gain, loss, or deduction that are specially allocated shall not be taken into account in computing Profits or Losses under Section 4.1.4.3. Notwithstanding the provisions of Section 4.1 of this agreement relating to allocation of Profits and Losses, no allocation of net losses of the Company may be made to any Member to the extent that the allocation would cause the Member to have a negative Capital Account at the end of the fiscal year in which the allocation would otherwise be made after adjusting the Member's Capital Account by (a) increasing it by the amounts the Member is deemed to be obligated to restore under Treasury Regulations §§1.704 2(g)(1) and 1.704 2(i)(5) (that is, the Member's share of partnership minimum gain and Member minimum gain), and (b) reducing it by the amounts described in Treasury Regulations §§1.704 1(b)(2)(ii)(d)(4), (5), and (6). Any net losses that cannot be allocated to a Member under the preceding sentence will be reallocated to the other Members in order to allocate the maximum possible amount of net losses to all Members. If any net losses are reallocated to another Member under this section, 100 percent of the net profits of the company for all subsequent fiscal years will be specially allocated to such other Member until the aggregate net profits specially allocated to such Member equal the aggregate net losses that have been reallocated to such Member. If net profits are specially allocated to more than one Member under this section, the net profits for any given fiscal year will be divided between those Members in proportion to the amount of the aggregate net losses that have been reallocated to each such Member and have not been offset by special net profit allocations as of the beginning of the fiscal year.4.4. Notwithstanding the provisions of the sections of this Agreement relating to allocation of net profits and net losses and special allocation of losses, the following special allocations will be made in the following order:4.4.1 Except as otherwise provided in Treasury Regulations §1.704 2(f), if there is a net decrease in the partnership minimum gain (as defined in Treasury Regulations §§1.704 2(b)(2) and 1.704-2(d)) of the company during any fiscal year, each Member will be specially allocated items of company income and gain for such fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to the Member's share of the net decrease in the partnership minimum gain of the company, determined in accordance with Treasury Regulations §1.704 2(g). Special allocations made under this subsection will be made to Members in proportion to their respective shares of the partnership minimum gain of the company at the end of the immediately preceding fiscal year, but no special allocations of income and gain will be required to be made to any Member to the extent the Member's share of the net decrease in the partnership minimum gain of the company results from a change in a debt obligation of the company that results in the Member's bearing the economic risk of loss with respect to the debt obligation, within the meaning of Treasury Regulations §1.752-2. The items of company income and gain to be specially allocated under this subsection will be determined in accordance with Treasury Regulations §§1.704 2(f)(6) and 1.704 2(j)(2). This subsection is intended to comply with the minimum gain chargeback provisions of Treasury Regulations §1.704 2(f) and is to be interpreted in a manner consistent with those provisions.4.4.2 Except as otherwise provided in Treasury Regulations §1.704 2(i)(4), if there is a net decrease in partner nonrecourse debt minimum gain of the company during any fiscal year, each Member who has a share of the partner nonrecourse debt minimum gain, determined in accordance with Treasury Regulations §1.704 2(i)(5), will be specially allocated items of company income and gain for such fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to the Member's share of the net decrease in partner nonrecourse debt minimum gain, determined in accordance with Treasury Regulations §1.704 2(i)(4). The items of company income and gain to be specially allocated under this subsection will be determined in accordance with Treasury Regulations §§1.704 2(i)(4) and 1.704 2(j)(2). This subsection is intended to comply with the minimum gain chargeback provisions of Treasury Regulations §1.704 2(i) and is to be interpreted in a manner consistent with those provisions.4.4.3 If any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations §§1.704-1(b)(2)(ii)(d)(4), (5), or (6) that result in the Member's Capital Account having a negative balance at the end of the fiscal year in which the adjustment, allocation, or distribution would otherwise be made after adjusting the Member's Capital Account by (a) increasing it by the amounts the Member is deemed to be obligated to restore under Treasury Regulations §§1.704 2(g)(1) and 1.704 2(i)(5) (that is, the Member's share of partnership minimum gain and Member minimum gain), and (b) reducing it by the amounts described in Treasury Regulations §1.704 1(b)(2)(ii)(d)(4), (5), and (6), the Member will be specially allocated items of company income and gain in an amount and manner sufficient to eliminate the negative balance in the Member's Capital Account, to the extent required by the Treasury Regulations, as quickly as possible. This subsection is intended to comply with the qualified income offset provisions of Treasury Regulations §1.704 1(b)(2)(ii)(d) and is to be interpreted in a manner consistent with those provisions.4.4.4 Nonrecourse deductions, as defined in Treasury Regulations §1.704-2(b)(2), for any fiscal year of the company will be specially allocated among the Members in proportion to each Member's respective share of losses under the section of this agreement relating to allocation of net profits and net losses.4.4.5 Any partner nonrecourse deductions, as defined in Treasury Regulations §§1.704 2(i)(1) and 1.704-2(i)(2), for any fiscal year of the company will be specially allocated to the Member who bears the economic risk of loss with respect to the partner nonrecourse debt, as defined in Treasury Regulations §1.704 2(b)(4), to which such partner nonrecourse deductions are attributable in accordance with Treasury Regulations §1.704 2(i)(1).4.4.6 If an adjustment to the adjusted tax basis of any asset of the company required under IRC §§734(b) or 743(b) must be taken into account, under Treasury Regulations §1.704-1(b)(2)(iv)(m), in determining the Capital Accounts of Members, the amount of the adjustment to the Capital Accounts will be treated as an item of gain (if the adjustment increases basis) or loss (if the adjustment decreases basis), and such gain or loss will be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are to be adjusted under the Treasury Regulations.The special allocations required under the preceding subsections of this section are intended to comply with requirements of the Treasury Regulations. The Members desire that, to the extent possible, all such special allocations be offset either with other additional special allocations or with special allocations of other items of company income, gain, loss, or deduction. Notwithstanding any other provision of the main section of this agreement relating to the allocation of profits and losses (other than the section relating to regulatory allocations), offsetting special allocations of company income, gain, loss or deduction must be made in whatever manner the managers reasonably determine appropriate so that, after such offsetting allocations are made, the Capital Account of each Member is, to the extent possible, equal to the Capital Account the Member would have had if the regulatory allocations were not part of this agreement and all items of company income, gain, loss, deduction, and credit were allocated pursuant to the sections of this Agreement relating to allocation of net profits and net losses and to special allocations relating to losses.4.5. Solely for income tax purposes, recapture of ordinary income under IRC §§1245, 1250, and similar sections shall be allocated between Members in the same proportions as the Members shared the deductions giving rise to the recapture.4.6. All Available Cash shall be distributed among the Members in accordance with their Economic Interest in the same manner as Profits and Losses are allocated pursuant to Section 4.1 (but not subject to adjustment pursuant to Sections 4.3 and 4.4). The parties intend that Available Cash shall be distributed as soon as practicable following the Manager's determination that such cash is available for distribution. The parties acknowledge that no assurances can be given with respect to when or whether said cash will be available for distributions to the Members. Except as otherwise provided in this Operating Agreement in connection with the dissolution of the Company, all distributions shall be made to the Members in the following order and priority: (a) first, in order for all Members to pay taxes on their allocable share of Profit allocated to them pursuant to Section 4.1, a distribution related to each calendar year, payable prior to April 15 of the following year, of an amount equal to the amount of Profit allocated to such Members pursuant to Section 4.1 times the maximum effective marginal tax rate of federal and state income taxes applicable to an individual residing in the State of California with respect to income earned in such year as determined by the Manager; and (b) the balance, if any, to the Members in accordance with their Economic Interest in the same manner as Profits and Losses are allocated pursuant to Section 4.1 (but not subject to adjustment pursuant to Sections 4.3 and 4.4).4.7. If the proceeds from a sale or other disposition of an item of Company property consist of property other than cash, the reasonable fair market value of that property shall be as determined by the Manager. If such noncash proceeds are subsequently reduced to cash, such cash shall be taken into account by the Manager in determining Available Cash.4.8. Notwithstanding any other provisions of this Agreement to the contrary, when there is a distribution in liquidation of the Company, or when any Member's interest is liquidated, all items of income and loss first shall be allocated to the Members according to their Economic Interest under this Article IV, and other credits and deductions to the Members' Capital Accounts shall be made before the final distribution is made. The final distribution to the Members shall be made as provided in Section 9.2(d) hereof. The provisions of this Section 4.8 and Section 9.2(d) shall be construed in accordance with the requirements of Reg §1.704-1(b)(2)(ii)(b)(2).EXHIBIT ATO OPERATING AGREEMENTOF20 SPOT MISSION, LLCMEMBERSHIP CONTRIBUTIONS AND INTERESTSPRIOR TO COMPLETION OF OFFERING:Member Percentage Interest20 Spot Management, Inc. 100%(see below for Contribution)AFTER COMPLETION OF OFFERING:Member Contribution Percentage Interest** Economic Interest Economic InterestPer §1.16(a) Per §1.16(b)**PREFERREDInvestors *[$300,000] ***24.076.024.0COMMON20 Spot Management, Inc. Grant of goodwill, concept, and rights to intellectual property, including know-how, processes, recipes, and tradename “20 Spot” and variants thereof, and all attendant trade dress and logos (Founders Contribution) for use in connection with operations of a wine bar and kitchen under the name “20 Spot” at the Premises.76.024.076.0TOTAL 100.0 100.0 100.0

Read more

BK-CPA

Bachelor's Degree

 
972 satisfied customers
Is an IRA included in one's taxable estate

Is an IRA included in one's taxable estate for the inheritance tax?. The IRA passes directly to the beneficiaries under the IRA's terms.

Read more

Lane

JD, MBA, CFP, CRPS

Doctoral Degree

 
16,298 satisfied customers
I received a 1099 misc line 3 from Enterprise Pipelines for

I received a 1099 misc line 3 from Enterprise Pipelines for damages as a result of the pipeline installation.The payment was for me to hire someone to fix the damages as their crew had left the area.I believe this should be non taxable as it is not income.What forms do I use to file this and avoid this?

Read more

Robin D.

Vocational, Technical or Trade School

 
20,266 satisfied customers
Have a partnership LLC where the commercial building is

Have a partnership LLC where the commercial building is titled. That. Building is being rented two to tenets. One of them is a business that the same tow Partners own and the other is rented to a non-related party. On the 1065 return schedule OK, is this considered a non-passive activity even though it's a rental property because it is being rented to a related party?

Read more

Lev

Retired

Bachelor's Degree Equivalent

 
24,192 satisfied customers
I was suit by an employee we settled for $ 65,000 with a

I was suit by an employee we settled for $ 65,000 with a monthly installment of 4000 to plaintiff and 2000 to plaintiff lawyer. how do I report this on form 1099 misc.Per the legal agreement, the defendant is to fill a 1099 to the plaintiff and one for the plaintiff attorney. Where exactly on the 1099 would you put it (box no) 3, 7 or 14

Read more

Lev

Retired

Bachelor's Degree Equivalent

 
24,192 satisfied customers
My husband and I have been living separately years pending

My husband and I have been living separately for 6 years pending a divorce. I fully support myself but since I have no qualifying children I can't use HOH as my tax filing status. Would I be able to file as single considering in AR a legal separation means living apart for 18 months pending a divorce?

Read more

 
37,548 satisfied customers
Regarding Section 179 and Uber JA: Thanks. Can

Customer: Regarding Section 179 and Uber JA: Thanks. Can you give me any more details about your issue? Customer: I have placed Vehicle in UberSelect & business use effective 2015 and would like to know whether I can writeoff full value of the car in year 2015 JA: OK got it. Last thing — JustAnswer charges a fee (generally around $32) to post your type of question to Tax Experts (you only pay if satisfied). There are a couple customers ahead of you. Are you willing to wait a bit? Customer: ok JA: OK. Now I'm going to take you to a page to place a secure deposit with JustAnswer. Don't worry, this chat is saved. After that, we will finish helping you.

Read more

Lev

Retired

Bachelor's Degree Equivalent

 
24,192 satisfied customers
S Corp transfers assets of $1M value, with zero adjusted basis,

S Corp transfers assets of $1M value, with zero adjusted basis, to partnership for 50% interest. What are tax consequences?

Read more

Lane

JD, MBA, CFP, CRPS

Doctoral Degree

 
16,298 satisfied customers
Per unencumbered residential property I own wish to exchange

Per unencumbered residential property I own wish to exchange my property A with another persons residential rental property B. B = is a Self directed IRA ////a custodian Trust is involved & a separate property manager performs most all services to saidSIDRA property as "B" ie a rental propeerty. In short can a person who owns a SIDRA = aka "A" residential property exchange her SIDRA (a residential property) for anther persons residential property aka "B".? In this idea , the end result/ plan is that theSIDRA asset "A" becomes a different property Prop B via an exchange of properties. ( .in a different city, in that property" B" becomes the asset in the SIDRA. I 's asking/trying to see if I can exchange my home/property B ( i am not a disqualified person)with another persons SIDRA " A ", ie the SIDRA property held by a Trust Co. . Thus my property "B". becomes the SIDRA for the IRA FBO =persons prop. thus a property manager & a trust exchange A for B thus The SIDRA asset becomes property "B" . ie as the asset,ie as a rental property. Then I take ownership of property A currently the SIDRA as mine in this exchange . Are there any SIDRA IRS rules ruling against this? I ask because I've read there are only a few specified IRS rules, thus if not excluded the exchangeis ok. yes no etc???

Read more

Lane

JD, MBA, CFP, CRPS

Doctoral Degree

 
16,298 satisfied customers
View more tax questions

How JustAnswer Works

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Pay nothing to your Expert if you're not satisfied.

In The News