Do I have to file Partnership K-1 ?

No one has an answer? Or have I asked the question incorrectly? If the latter, please guide me so that I can provide additional information that may be needed to answer my question - or at least give me a direction in which I can further study the subject. Eventually I will pay a CPA to give me an authorized answer, but due to insufficient income this year, I am trying to learn as much as possible up front, to minimize the amount the CPA will charge.

Thanks, Victor

Partnerships file Forms 1065 and the related Schedules K-1. A single member LLC is not a partnership. It is disregarded for federal tax purposes unless it elects to be taxed as a corporation.

The fair market value of the shares is reported as income on your Schedule C. That income amount becomes your basis in the shares.

Agreeing with Bill ... you have not formed a partnership with the other company, as you have described the transaction. Your LLC has agreed to perform services for the other company (your customer) and accept shares in that company as part of your payment. The FMV of the shares you received (at the time of receipt with no restriction on your sale or other disposition of them, or if there are restrictions, at the time those restrictions are removed or expire) is ordinary income to you, reportable as gross receipts on your Schedule C. As Bill says, that amount will be your basis in the shares for calculating capital gain or loss when you dispose of them. If the shares had no FMV when you received them, your income is zero and your basis in them is zero.

The foregoing assumes that the "other company" is a corporation, or would be a corporation under U.S. law. If the "other company" is a flowthrough entity, analogous to a U.S. LLC, then you may have flowthrough income from that entity and IT needs to issue YOU a K-1 or the equivalent.

Katie in San Diego

If you formed a single-member LLC you do not need to file a partnership return or any K-1s. You can report your income and expenses on Schedule C.

A single-member LLC is a disregarded entity for tax purposes.

As others have advised, the value of the stock received would be income if there are no restrictions at the time of receipt.

Hmmm... I just contacted a CPA and it turns out that my fears come true... I was shocked to discover that my situation is not special at all and there is an entire section in IRS code called Section 83, dedicated just to this issue:

The FAQ on section 83(b) states:

Fair market value for purposes of section 83(b) is determined in the same manner as for other provisions of the Internal Revenue Code. That is based upon all of the facts and circumstances. The person making the 83(b) election must declare a value for the property at the time of making the lection, but the IRS may later challenge or contest this value. This is one of the risk of making an 83(b) - if the value is challenged, the person may find themselves owing more tax than planned. For this reason, it is prudent to either use objective criteria to establish value. Methods often used include: (a) comparable sales to others for cash on or about the time of the transfer; (b) valuations determined by a qualified appraiser, or (c) valuations based upon determinations by others (such as a venture capitalist valueing a company for the purpose of making an investment.

It seems that the answer is unequivocally NO.

Yup! This is a well known issue, described in the FAQ here:

Yes, the time has come to pay to a CPA...

Victor