Discussion:LLC has NOL
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Discussion Forum Index --> Tax Questions --> LLC has NOL
| 22 August 2008 | |
| Scenario – 4 members formed an LLC in April 2008
That LLC owns another LLC (disregarded entity) that they all participate in … The Guaranteed payments are issued to members from 2nd LLC. – 2 members receive $1000 per week, and 1 receives $700 per week, the last member does not participate in running the company on a full time basis but is contributing funding through a home equity loan (so far $210k). He is not receiving any guaranteed payments. The OA for LLC#1 has their equity accounts funded at: 2 @ 310.00 (31%) and 2 @ 190.00 (19%) The infusion of cash to LLC #2 from the member with the home equity is classified as a partner loan The company is projected to have about a 175k loss in this, it’s first year. Based on their percentage of ownership, what portion of that loss would be deductible to them..? The percentage of the loss that corresponds with each members equity per the OA (54,250 and 33,250 respectively)? | |
Miamicounsel (talk|edits) said: | 7 September 2008 |
| Did you ever figure this out- I am trying to find out how to enter the K-1 for another LLC (call it LLC-2) that has substantial losses in start up years and is 91% owned by another LLC (Call it LLC-1) which is in turn owned by three members. IT creates an imbalance in capital accounts. | |
ReadMyLips (talk|edits) said: | 7 September 2008 |
| How can the 2nd LLC be a disregarded entity if it's owned by a 4-member LLC, am I missing somehting (may or may not be important).
First, it sounds like the guaranteed payments are part of the reason for the losses as they just get deducted on the p/s return. I think the ordinary income should be allocated by ownership % and the guaranteed payments are individually reported as income on the K1s. The owner that doesn't actively participate in the business should probably be labeled as limited member and the others as managing members. Miamicounsel-If I'm understanding your situation-you would just enter the K1 information from LLC#2 into LLC#1 return (this would be 91% of the total LLC#2 amounts). The overall income/losses would be allocated to the three members of LLC#1 based on ownership %. Most tax software has a K1 input screen that you can use to enter LLC#2s info. | |
| 7 September 2008 | |
| only taxpayers may have an NOL. Passthroughs have operating losses. | |
| 10 September 2008 | |
| Abacusone: LLC #2 is a disregarded entity because it has a single owner, LLC #1. The number of members LLC #1 has is not relevant. LLC #2 is treated for tax purposes as if it did not exist as an entity separate from LLC #1.
The guaranteed payments are subtracted in arriving at the combined net income of LLCs #1 and #2. If the result of that calculation is a net loss, it is distributable among the members of LLC #1 in accordance with the Operating Agreement. They can deduct their distributive shares of the loss, to the extent it is not restricted by basis, at-risk, or passive loss rules, in computing their individual taxable income. If that results in a net loss, the member may have an NOL to carry back or forward. As Kevinh5 notes, the flowthrough entity (the LLC) does not have an NOL to carry back or forward. Miami: I think ReadMyLips answered your question. | |
