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!

516

1 Best answer

Level 13

Sep 10, 2022 2:59:43 PM

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)

Level 15

Sep 10, 2022 12:56:35 PM

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

Level 13

Sep 10, 2022 2:59:43 PM

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)

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Owners Draw Taxation on Pre-Revenue Partnership