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gmcdwll
New Member

In a 2-member LLC,we want the two to share distributions 50/50, but we want one member to pay taxes. Can that be done? This is our last year and final K1.

There is an interview page where members are allocated ownership percent and profit & loss percentages for beginning/end of year.  I'm guessing, if it can be done, that would be the place?  But how?

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Anonymous
Not applicable

In a 2-member LLC,we want the two to share distributions 50/50, but we want one member to pay taxes. Can that be done? This is our last year and final K1.

there are probably tax consequences for both that should be considered.  say both have $0 basis at the beginning of the year.  the LLC earns $100,000  each member receives $50,000 one receives $100,000 of income 

the one receiving the $50,000 but no income has a $50,000 capital gain (distribution exceeds basis)  

the one receiving the $100,000 in income has to report (maybe pay Self Employment tax too) it in addition since his basis is $100,000 (the income) before  distribution and $50,000 after he has a $50,000 capital loss (if this is only item of capital gain/loss for   year   only $3,000 would be deductible ther est would need to be carried over.  


then there is IRC code section 704(b) 

Determination of distributive share

A partner’s distributive share of income, gain, loss, deduction, or credit (or item thereof) shall be determined in accordance with the partner’s interest in the partnership (determined by taking into account all facts and circumstances), if—

(1) the partnership agreement does not provide as to the partner’s distributive share of income, gain, loss, deduction, or credit (or item thereof), or

(2) the allocation to a partner under the agreement of income, gain, loss, deduction, or credit (or item thereof) does not have substantial economic effect.


in other words the IRS could challenge the income allocation 


anyway in TT there's a page for partners where you would indicate the date of change and the new %'s


however, my advice, is to see a tax pro before you do something that could result in substantial tax penalties 

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1 Reply
Anonymous
Not applicable

In a 2-member LLC,we want the two to share distributions 50/50, but we want one member to pay taxes. Can that be done? This is our last year and final K1.

there are probably tax consequences for both that should be considered.  say both have $0 basis at the beginning of the year.  the LLC earns $100,000  each member receives $50,000 one receives $100,000 of income 

the one receiving the $50,000 but no income has a $50,000 capital gain (distribution exceeds basis)  

the one receiving the $100,000 in income has to report (maybe pay Self Employment tax too) it in addition since his basis is $100,000 (the income) before  distribution and $50,000 after he has a $50,000 capital loss (if this is only item of capital gain/loss for   year   only $3,000 would be deductible ther est would need to be carried over.  


then there is IRC code section 704(b) 

Determination of distributive share

A partner’s distributive share of income, gain, loss, deduction, or credit (or item thereof) shall be determined in accordance with the partner’s interest in the partnership (determined by taking into account all facts and circumstances), if—

(1) the partnership agreement does not provide as to the partner’s distributive share of income, gain, loss, deduction, or credit (or item thereof), or

(2) the allocation to a partner under the agreement of income, gain, loss, deduction, or credit (or item thereof) does not have substantial economic effect.


in other words the IRS could challenge the income allocation 


anyway in TT there's a page for partners where you would indicate the date of change and the new %'s


however, my advice, is to see a tax pro before you do something that could result in substantial tax penalties 

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