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Level 1
posted Mar 31, 2021 7:03:32 AM

LLC Guaranteed Payment to an LLC owner

Hello

I have an llc ("Main LLC") that pays guaranteed payments to 2 partners. The 2 partners own their equity in a jointly owned LLC ("Sub-LLC"). Should Main LLC make guaranteed payments to the indiv. partners or should the payments be treated as a distribution to Sub-LLC, and then the Sub-LLC makes guaranteed payments to the individuals? Thanks I'm a little stuck this is the first return for this LLC.

0 4 970
4 Replies
Level 15
Mar 31, 2021 7:20:11 AM

Is the "Sub-LLC" the sole member of the "Main-LLC" (and there is no election to be treated as a corporation)?

If so, the "Main-LLC" is a disregarded entity for federal income tax purposes and the payments will be reported on the K-1s issued by the "Sub-LLC". 

Level 1
Mar 31, 2021 7:33:23 AM

No, the Main LLC has two members.  Both of the members are multi-member LLCs.

 

So Main LLC is owned 67% by A LLC and 33% by B LLC.

 

B LLC are the two individuals that do work in the business.  Main LLC (supplied the capital for the business which is operating at a loss) paid guaranteed payments to them individually, but as I was doing the returns it occurred to me that Main LLC may need to make the payments to B LLC and then have the individuals get their GPs from B LLC.  If this is correct (and I'm not sure it is) how do I treat the payments from Main LLC to B LLC?  Can you pay an LLC a GP?  Should it be a distribution?  or should it be an expense paid to B LLC?  I'm probably making it more complicated than it should be...I TRULY APPRECIATE YOUR HELP.  thanks so much

Level 15
Mar 31, 2021 8:13:27 AM

If you look at the actual substance of the transaction, the members are performing services for the sub-LLC so their K-1s could reflect the guaranteed payment for those services for the sub.

 

You have managed to establish a rather complicated entity structure and, considering this is your first year, you might want to consult, in person, with a local tax professional.

Level 1
Mar 31, 2021 8:29:34 AM

Agreed, I'm going to get some help, but thanks for that response.  

 

I think you are saying that the individuals are performing services for the "Main LLC" thus can get GPs from the Main LLC...vs. me having to make the payments to the LLC in which the individuals own their shares....which is how I originally structured it.

 

You are awesome!  thanks.