- quote -

LLC law is pretty consistent from state to state.

As I understand it, the contributions to the LLC can be
anything that the members agree to. For example, one
partner might put in all the money, the other does all the
work, and they agree to be 50/50 owners.

Having done that, you'd still need a valid reason to divide
losses other than by the ownership shares. No, I don't know
what the IRS considers to be a valid reason, either.

Regards,
John Levine, johnl[at]iecc.com, Primary Perpetrator of "The Internet for Dummies",
Information Superhighwayman wanna-be, http://www.johnlevine.com, ex-Mayor
"More Wiener schnitzel, please", said Tom, revealingly.

<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >

scruffy323 wrote:
- quote -

This brings up a good question. From what you say, only one
of the two members put in money.

The question for debate here now becomes, can a person be a
member of an LLC without having invested any funds atall?
Might the answer depend on state law? Do all states have
same laws on the subject? Is there a Uniform LLC Act?

ChEAr$,
Harlan Lunsford, EA n LA

<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >

Harlan Lunsford <hnslunsf...[at]bellsouth.net> wrote:
- quote -

Is the reason good enough? That one of the two partners is
funding the venture which is not profitable yet so he gets
to accept all the loses.

Steve

<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >

"scruffy323" <steve.morin[at]gmail.com> wrote:

- quote -

A well drafted partnership agreement can address these
issues. It certainly possible, at least theoretically.
However, if there is no economic substance, or only tax
motivation, the IRS can disregard your allocations. So, as a
practical matter, it can be quite difficult to accomplish.

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] > > -----> real address on hobokeni or hobokenx <-----

<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >

scruffy323 wrote:

- quote -

Since losses are "asigned" based on membership, that
works if one owner has 99% ownership, thus the other
minority member would be "awarded" 1% of the loss.

Remember though, deductibility on a member's 1040 still
depends on basis within the LLC.

ChEAr$,
Harlan Lunsford, EA n LA

<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >

scruffy323 <steve.mo...[at]gmail.com> wrote:

- quote -

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. > << ------------------------------------------------------- >

"scruffy323" <steve.morin[at]gmail.com> wrote

- quote -

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. > << ------------------------------------------------------- >

scruffy323 wrote:

- quote -

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. > << ------------------------------------------------------- >

"scruffy323" <steve.morin[at]gmail.com> wrote

- quote -

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. > << ------------------------------------------------------- >

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

<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >