We are considering starting an LLC. There will be 3 members. Only one member is supplying capital ($300k). My questions are:
Will the initial $300k be considered income for the LLC and thus taxable?
And would the other 2 members have to claim $100k as a gift?
If we elect to be taxed as a corporation would this change any of the above?
If anyone knows where in the IRS publications I could find an answer to these questions I'd appreciate hearing from them.
Thanks, JRL
Income to the LLC? Unlikely. Investments are not normally considered gifts to the company the investment is made in.
That depends, too. Why is one giving all the money? Are the others doing something in return for their shares? You will need professional advice to be sure there is no taxable income on the other members, but it can be done.
No.
Stu
Yes, the other 2 will be doing all the work.
JRL
In that case you have to be very careful that the investment of the other two is not considered compensation in exchange for services, in which case the value of the interests they get will be considered taxable income. At this point I'm not even sure you can avoid that. Talk to a tax lawyer who is familiar with securities law (small offerings) for your best chance.
Stu
"Jrludi" wrote
No.
Nope. But they willhave $0 basis in the partnership.
Depending on yoru shares of ownership, and how it's structured, you may have problems.
Why would you form an LLC and elect corporate status? Talk this through with a CPA also. There are way too many factors to make a blanket claim as to which is best.
This is getting beyond the technical aspects of publications.
As Stuart mentioned, talk to an attorney in detail (be prepared to pay for it) about how this all plays out, and pay attention to the pitfalls. Find a good local CPA or EA for assistance.
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