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Infolawyer, Attorney
Category: Business Law
Satisfied Customers: 1764
Experience:  Experienced lawyer
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If I receive a large in vestment in our LLC how do I prevent

Customer Question

If I receive a large in vestment in our LLC how do I prevent it from being a capital gain?
Submitted: 1 year ago.
Category: Business Law
Expert:  Maverick replied 1 year ago.
Welcome to Just Answer (“JA”)! My name is Maverick. Please note that: (A) The information we provide is general information. No attorney-client relationship or privilege is formed by communicating with me. If you want legal advice, you must consult with a local attorney in person before acting or deciding not to act based on any information given here; (B) Experts answer questions based on the honor system. When I feel that I have provided you with a complete answer, I will ask for you to assign a feedback rating so that JA will compensate me for my time; and (C) You should not be concerned about any short delays between your questions and my replies. Please know that I answer most questions within the hour if I am signed on. If I am not signed on, then I still make every attempt to respond within 24 hours. Thank you for taking the time to understand how this site works. By continuing, you confirm that you understand and agree to these terms. Answer will follow in the pane below as per above parameters….1. CAN YOU PLEASE PROVIDE MORE BACKGROUND INFO SO THAT WE CAN BETTER ASSIST YOU?
Customer: replied 1 year ago.
What information?
Customer: replied 1 year ago.
I want to structure a large payment as a tax free investment in my LLC.
Customer: replied 1 year ago.
If I sell an interest in the LLC it will be subject to capital gains tax and passed through on a K1
Customer: replied 1 year ago.
How do I make sure it is a capital contribution to the LLC?
Expert:  Maverick replied 1 year ago.
Are you going to issue a membership interest for this large incoming investment? Are you making the investment or someone else?
Customer: replied 1 year ago.
I am expecting a large check as part of deal and I can structure it as an investment check.
Customer: replied 1 year ago.
If I issue a membership percentage the the sale of that is capital gain. Correct?.
Expert:  Maverick replied 1 year ago.
Okay, let's back up and take this one step at a time. 1. Is the check that you are to receive going to be made out in your name personally?2. Generally, what is the source of the check, for example, is it a payout from a personal injury lawsuit or for work done, etc.3. Yes, if you issue a membership interest in the LLC in exchange for the LLC's receipt of the funds, then down the road when that membership interest is sold, there could be recognition of a capital gain depending on the value of the LLC at that time.
Customer: replied 1 year ago.
1. No, It will be to my LLC
2.It is from a large company for a license to make our products but prior checks of their said "involvement " on them.
Customer: replied 1 year ago.
excuse me it want "investment"
Expert:  Maverick replied 1 year ago.
Is the large company asking for a membership interest in your LLC in exchange for the check or are they just paying that check in exchange for a right to make the product?
Customer: replied 1 year ago.
Right to make the product but, I can get them to structure as an investment. Its all negoitable
Customer: replied 1 year ago.
I want to avoid passing a large capital gain through to the members
Expert:  Maverick replied 1 year ago.
No, you do not want them to receive a membership interest in your LLC. It is better for the LLC to just accept the payment and recognize it as income. Trying to dodge this concept could put you and the LLC in danger of tax fraud. MORE TO COME
Customer: replied 1 year ago.
Expert:  Maverick replied 1 year ago.
The LLC members do not have to worry about recognizing a capital gain until such time that anyone of them decides to sell his/her interest in the LLC and at that time the value of the LLC may be different then it would be this year. Is there any reason that you need to keep a lot of the funds received in the LLC or would you be distributing those as income?