Discussion:How to record capital contribution

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Discussion Forum Index --> Accounting Questions --> How to record capital contribution


Chicagocpa1 (talk|edits) said:

10 September 2013
Taxpayer is an scorp. Scorp owns 1% of an LLC. The 2011 LLC K1 indicates capital contributed during the year of $7200. This was the result of some internal re-organization in the LLC, with a member dropping out - not a cash contribution. I presume, thus, that there is no tax basis given for this. How/would this be recorded for book purposes on the scorp? Dr. Investment in LLC and Cr. APIC?

Podolin (talk|edits) said:

11 September 2013
Generally, a member/partner does not just get added basis magically. What happened? What does it mean some internal re-organization in the LLC, with a member dropping out - not a cash contribution? Can you get more specific facts as to what happened?

Chicagocpa1 (talk|edits) said:

11 September 2013
Unfortunately, there was little information given to me. A member relinquished his shares and forgave the debt the LLC owed him and the other members received a capital contribution for book purposes.

Podolin (talk|edits) said:

11 September 2013
Why did that member do that? Was a gift or compensation intended? Was there a settlement of a dispute? The answers to those and possibly other questions will have something to do with both the accounting and tax answers.

Chicagocpa1 (talk|edits) said:

11 September 2013
All good questions for which I will never have answers. All I know and will know is what I mentioned here.... $7200 of capital contribution on the K1 and no cash exchanged hands.

Podolin (talk|edits) said:

12 September 2013
Without that info, you may or may not be omitting income from the S corp's return. C'est la vie.

Captcook (talk|edits) said:

13 September 2013
Capital for book purposes...Even if you are preparing a GAAP statement for this client, you probably don't need to know why they did this on the partnership books to present the financial statements of your client. Tax basis is still tax basis, which won't include this amount. Since they own <20% of the partnership, it should be accounted for on the cost basis, which would be similar to tax basis.

In my professional opinion...fuggedaboudit.

Podolin (talk|edits) said:

13 September 2013
fuggedaboudit.  ???

Well, it is only $7200, so maybe no big deal for the S corp. that owns 1% of the LLC. But for the LLC, it could be a big deal. $720,000 was "contributed" to capital via a settlement, gift, compensation, or ….

Tax basis is still tax basis, which won't include this amount. Since they own <20% of the partnership, it should be accounted for on the cost basis, which would be similar to tax basis. Not so sure of that. Tax basis might include that amount. See my previous paragraph.

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