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Posted by taxxcpa on February 4, 2008, 4:26 pm
Please log in for more thread options Katie wrote:
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>>> or can I continue using schedule C?
>>> Here is my situation:
>>> I established a single-member LLC in 2006.
>>> In August 2007 I signed (as the duly authorized agent of the LLC) an
>>> agreement with a foreign (i.e. non-US) startup: In exchange for my
>>> professional services, I will receive 10% of the stocks of that
>>> company. This is an addition for a certain monthly payment for my
>>> services.
>>> Currently, no profits (or any other income other than small
>>> investments) have been generated by that other foreign (non-US)
>>> company. Thus, the entire "ownership" of that other company is
>>> somewhat theoretical (i.e. on paper - no income made yet).
>>> My question is: should the stocks that my LLC currently owns (of that
>>> other company) be treated as "capital" (as in "capital gain")? Or do I
>>> have to file Partnership K-1?
>>> I know that this calls for hiring a CPA but currently I haven't made
>>> enough income and I have been able to manage by filing Schedule C all
>>> by myself... If no partnership K-1 is required then I can continue in
>>> that mode until livable income starts flowing in.
>>> Should K-1 partnership be filed from the year that partnership was
>>> conceived? Or only from the year that partnership resulted in any
>>> income?
>
>
> Agreeing with Bill ... you have not formed a partnership with the
> other company, as you have described the transaction. Your LLC has
> agreed to perform services for the other company (your customer) and
> accept shares in that company as part of your payment. The FMV of the
> shares you received (at the time of receipt with no restriction on
> your sale or other disposition of them, or if there are restrictions,
> at the time those restrictions are removed or expire) is ordinary
> income to you, reportable as gross receipts on your Schedule C. As
> Bill says, that amount will be your basis in the shares for
> calculating capital gain or loss when you dispose of them. If the
> shares had no FMV when you received them, your income is zero and your
> basis in them is zero.
>
> The foregoing assumes that the "other company" is a corporation, or
> would be a corporation under U.S. law. If the "other company" is a
> flowthrough entity, analogous to a U.S. LLC, then you may have
> flowthrough income from that entity and IT needs to issue YOU a K-1 or
> the equivalent.
>
> Katie in San Diego
>
If you formed a single-member LLC you do not need to file a partnership
return or any K-1s. You can report your income and expenses on Schedule C.
A single-member LLC is a disregarded entity for tax purposes.
As others have advised, the value of the stock received would be income
if there are no restrictions at the time of receipt.
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