Discussion:Expenses paid on behalf of partnership

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Discussion Forum Index --> Accounting Questions --> Expenses paid on behalf of partnership


Northwest211 (talk|edits) said:

29 March 2013
New-to-me client and I'm questioning how a few things have been handled in the past. Here's one at the top of my list:

One partner (GP) has a separate LLC and he pays expenses on behalf of this LLC. Utility bills, subcontractors, full time employee… you name it. Apparently he is taking these as expenses on his other LLC. So these should be payables from the perspective of XYZ? The prior accountant was hitting expense and offsetting to capital contributions. If I set them up as payables, what is the offset? I don't see an asset or expense so I'm stumped.

Podolin (talk|edits) said:

29 March 2013
I assume (but please confirm) that the separate LLC is a SMLLC and is a disregarded entity. So, for tax purposes, the GP is paying expenses on behalf of XYZ, the "other" LLC, which is taxed as a partnership. Is the agreement that XYZ will reimburse GP for the expenses? Or is the agreement that GP will bear the expenses on behalf of XYZ? Getting those answers should get us to the correct accounting, at least the correct tax accounting.

Northwest211 (talk|edits) said:

29 March 2013
Nope, neither are SMLLC's. GP's LLC (ABC) pays expenses on behalf of XYZ. The agreement is that XYZ will reimburse ABC when XYZ is turning a profit. That's why I'm leaning towards payables, but I'm at a loss as to my offset.

There's more... The 4 partners of XYZ are all self employed consultants. At the end of the year, they each send the LLC an invoice for their time. Prior accountant hit consulting expense and offset to partner loans (no interest paid/accrued since interest was not part of the agreement). So the liability side of the B/S is growing quite large, and equity is in a negative position. This has been going on for a few years. Does that sound right?

My time in public was not spent on partnerships (or very few)... this was dumped on me by a close family member and I'm stuck with it. Feeling a bit over my head so any thoughts are greatly appreciated.

Podolin (talk|edits) said:

29 March 2013
If XYZ will be reimbursing ABC, then it seems the expenses are those of XYZ. I'd have the expense on XYZ's books, with a credit to payables. Are the LLCs on the accrual method? There are issues of deducting unpaid accruals between related parties.

This whole thing sounds strange. XYZ will reimburse "when XYZ is turning a profit". So, is it a contingent liability? The 4 partners of XYZ bill it for their time, but do not get paid? Where is revenue, if any? What is everybody living on? Have you seen the partnership (LLC) agreement? How are they sharing profits, losses, etc.?

Northwest211 (talk|edits) said:

29 March 2013
I should have clarified- employee (maintenance guy) is technically employed by ABC (cash basis). However 80% of the work he does is work for XYZ (accrual basis). ABC pays his salary and benefits and takes the payroll expense. But ABC wants reimbursement from XYZ for that 80%.

They have a property that they're trying to turn into housing. In the meantime there is some minimal commercial rent coming in, maybe 30k/yr. Partners all do well in their private practices and only spend maybe 50 hrs/yr on this, so no one is starving.

I have not seen the LLC agreement so I'm not sure what revenue dollar triggers payback. But I do know that it is all contingent, including the "loans" aka consulting hours.

And yes, you are correct, it is strange.

Podolin (talk|edits) said:

29 March 2013
Perhaps their objective is to claim the expenses earlier than XYZ would have been able to claim them. ut they could have just had the expenses paid directly by ABC, using funds supplied by the GP.

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