Discussion:LLC disproportionate distributions to members
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Discussion Forum Index --> Advanced Tax Questions --> LLC disproportionate distributions to members
Discussion Forum Index --> Tax Questions --> LLC disproportionate distributions to members
| 16 May 2008 | |
| I inherited an LLC where the 25% member has distributions that actually exceed that of the 75% member. There are no at risk issues thus far due to debt mainly, but I have told the members that the exceess distribution either needs to be treated as a guaranteed payment, or as a loan to the member. The members fully intend to bring the distributions back to their proportionate levels, but in the interim, these distributions defy the LLC agreement.
Any comments or suggestions? Mine is to treat it as a loan, and run it through equity at which timje they are ready to even up their member equity accounts. | |
| May 16, 2008 | |
| If the members did it willingly, their understanding to that effect is part of the "partnership agreement." | |
| 16 May 2008 | |
| Agree with LH. There is no requirement that ongoing distributions be proportionate to capital accounts. As long as the 25% member's capital account is being reduced for the distributions, the disproporationately large payments to the minority owner (that will be corrected in the future) should not be a problem. | |
| 16 May 2008 | |
| Sounds good. Thanks for the feedback. I suppose that even if the member agreement says proportionate, if they agree to it, it's acceptable. Thanks much. | |
| 16 May 2008 | |
| I thought that if there were hot assets and disproportionate distributions, gain recognition could be triggered because it changes the relative ownership of those assets. | |
| 12 June 2008 | |
| Question - Can 2 members with membership interests of 51% and 49% allocate profit and losses as well as distributions 50% and 50% if agreed upon in the operating agreement? This is an llc electing scorp status | |
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