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Posted by scruffy323 on October 24, 2007, 7:16 am
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I am looking to find out if something is legal from a tax
perspective because I heard of a company doing something
along these lines a few years ago but wasn't privy to the
details.
Basically if there are two owners to a LLC can one owner
accept all the loses to the LLC while the other owner
accepts none?
Steve
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Posted by Paul Thomas, CPA on October 24, 2007, 5:46 pm
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> I am looking to find out if something is legal from a tax
> perspective because I heard of a company doing something
> along these lines a few years ago but wasn't privy to the
> details.
>
> Basically if there are two owners to a LLC can one owner
> accept all the loses to the LLC while the other owner
> accepts none?
Yes, it's possible, but there needs to be an economic
purpose for doing so, and not just one of tax avoidance.
You would still have the issue of basis in which to deduct
the loss, and passive activity rules to clear for that
partner.
--
Paul A. Thomas, CPA
Athens, Georgia
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Stuart Bronstein on October 24, 2007, 5:46 pm
Please log in for more thread options scruffy323 wrote:
> I am looking to find out if something is legal from a tax
> perspective because I heard of a company doing something
> along these lines a few years ago but wasn't privy to the
> details.
>
> Basically if there are two owners to a LLC can one owner
> accept all the loses to the LLC while the other owner
> accepts none?
The basic rule is that if profits and losses are to be
distributed other than in proportion to ownership, there
must be a good, valid economic reason to do that - other
than tax reasons.
So the answer to your question is no, not unless you have a
damned good financially viable but non-tax reason for it.
Stu
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Dick Adams on October 24, 2007, 5:46 pm
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> I am looking to find out if something is legal from a tax
> perspective because I heard of a company doing something
> along these lines a few years ago but wasn't privy to the
> details.
>
> Basically if there are two owners to a LLC can one owner
> accept all the loses to the LLC while the other owner
> accepts none?
It is often done, but the answer is "It depends on the facts
and circumstances" which had better clearly have economic
substance.
Keep in mind an LLC is simply a partnership with limited
liability amongst the partners.
Back in the days of iron men and wooden ships, CPA firms
were partnerships which means there had to be two partners.
The example I used in classes was Smith & Wesson, CPA had
two partners Smith and Wesson. Wesson retires and Smith had
two years to find another partner or change the name. So
Smith offers Jones, a CPA employee, an interest in the
partnership whereby Jones gets 2% of the profits and 0% of
the losses.
Dick
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by cballard@tyyni.net on October 24, 2007, 5:46 pm
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> I am looking to find out if something is legal from a tax
> perspective because I heard of a company doing something
> along these lines a few years ago but wasn't privy to the
> details.
>
> Basically if there are two owners to a LLC can one owner
> accept all the loses to the LLC while the other owner
> accepts none?
The answer to your question is ... maybe. In order to do
this, the special allocation of losses has to have what the
regulations call "substantial economic effect". In other
words, there has to be a reason for doing it aside from it
being beneficial from a tax perspective. Special
allocations like this also generally require a whole bunch
of additional language in the operating agreement saying
that the members of the LLC will even everything out from a
tax perspective if the LLC dissolves. This is not a
do-it-yourself project, the regulations are long and
arcane...I'd highly recommend seeking out a tax lawyer who
is familiar with partnership tax.
--Chris
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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