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FriendlyFlux
Level 1

Owners Draw Taxation on Pre-Revenue Partnership

Hello,

 

I am in a LLC partnership with 4 members. Two of the members provided the initial equity in the company. We have received no income. Is it still taxable if I take an owners-draw on some of the initial equity?

 

Thanks!

1 Best answer

Accepted Solutions
Rick19744
Level 12

Owners Draw Taxation on Pre-Revenue Partnership

Based on the limited facts:

  • You need to meet with a tax professional
  • If two members did not contribute capital they have a profits interest only or else there could be an income event.
  • The “draw” could be a guaranteed payment or a distribution depending on the intent
  • Regardless, either would be taxable (assuming you are one of the non capital contributing members)
*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

2 Replies
tagteam
Level 15

Owners Draw Taxation on Pre-Revenue Partnership

You need to figure your basis in the partnership. 

 

If you contributed nothing (including not taking on debt) and there has been no revenue, it is difficult to comprehend how (and why) you would be taking a draw in this scenario. 

 

If your basis is $0, then you will recognize gain to the extent of the distribution.

 

@Rick19744 

Rick19744
Level 12

Owners Draw Taxation on Pre-Revenue Partnership

Based on the limited facts:

  • You need to meet with a tax professional
  • If two members did not contribute capital they have a profits interest only or else there could be an income event.
  • The “draw” could be a guaranteed payment or a distribution depending on the intent
  • Regardless, either would be taxable (assuming you are one of the non capital contributing members)
*A reminder that posts in a forum such as this do not constitute tax advice.*
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