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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 55278
Experience:  29 years of experience as a tax, real estate, and business attorney.
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I have an llc partnership that has members and mangers. Only

Customer Question

I have an llc partnership that has members and mangers. Only the managers are on the corporation. They only have 7.14% interest each (two of them) The members have the rest. They have an agreement that no money is disbursed until they have $30,000 in reserve. There is a $7200 profit in 2015. How do I put this on the tax return so that the two members are not taxed on the $7200?
Submitted: 1 year ago.
Category: Tax
Expert:  Richard replied 1 year ago.
Good afternoon. My name is ***** ***** I look forward to helping you. Unfortunately, the $7200 is going to be taxable. Taxable income is separate and distinct from cash distributions. If the LLC has net income, that gets allocated to its members. What they decide to do with the cash generated by the income does not negate the fact that the LLC had income for the year. It's much like a person that works...the person's income is taxable whether or not the person spends the money or saves it. The members' capital account balances will be increased by the net income allocated to them resulting in a positive capital account, but the fact that the LLC decides to hold the money in reserve rather than distribute does not mean the net income does not have to be allocated to the members. Most of the time, the members will include a provision in their Operating Agreement allowing for distributions to enable the members to pay tax on any net income of the LLC. If this one doesn't have it, the members might want to amend the agreement to include such a provision. This is the part of my job I don't like...when the law is not in favor of my customer. But, I can only provide you information based on the law so that you can act on the best available information to you. ………..I wish I had better news, but can only hope you recognize and understand my predicament and don't shoot the messenger. I'm sorry! Thank you so much for allowing me to help you with your questions. I have done my best to provide information which fully addresses your question. If you have any follow up questions, please ask! If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service as OK, Good or Excellent (hopefully Good or Excellent). Otherwise, I receive no credit for assisting you today. I thank you in advance for taking the time to provide me a positive rating!
Customer: replied 1 year ago.
SO how do I allocate the to the members that are not on the tax return. There are only two managers on the corporation. The rest will get 1099's on the income. Do I need to create a 1099 for the other members based on their percentages? There are four members that will never be on the corporation therefore will never get a K-1
Expert:  Richard replied 1 year ago.
Thanks for following up. Why is it that some members are recognized as owners and others are not?