Any ideas for p'ship distribution?

[Margaret CPA in OH]

Re: the saga of the partnership that got ahead of themselves. Now wife is faced with $23,051 of short term cap gains with the distributions she received to buy the property which is titled in her name as are the utilities.

Mother contributed $17,800, wife contributed $5000. I added up all the expenses paid for the property purchase and remodeling and considered that as cash distributions to the wife. When the property is titled to the LLC, it will be her property contribution.

So they are going to be unhappy, to put it mildly. Is it possible for the partnership to make a loan to the wife? In my LLC & Partnership Answer Book it says yes but the operating agreement 'should' address this issue. Theirs does not.

Another issue is that the capital accounts don't show on the K-1's and, with the wife's excess withdrawal of cash, the capital is depleted, why wouldn't that be possibly taxable income to her? Her capital account summary (worksheet, not on K-1) shows negative $18,000. Is this a problem? But it may go away if we do the loan.

I have spent waaaay too much time on this. I am not a fan of partnerships. Think I will get out the business next year as I did for corps a couple of years ago.

[rfassett]

Thinking outside the box here (because I can not seem to get inside this box (I think I am missing some key plot points)- can the LLC be an operating company at this point; renting the house from wife and doing leasehold improvements until such time as wife contributes the property to the LLC?

[Margaret CPA in OH]

Thanks for thinking. I wish they had done so or at least asked before acting.

I am inclined to have the LLC make a loan to the wife of the total withdrawn. As for renting, there is no more cash in the LLC as it went to buy the house and remodel. And the other day the client said they have now rented it as it wasn't selling. I don't yet know whether it was retitled in the name of the LLC first. I hope so!

It could well be I am not clear on your suggestion of the LLC being an operating company. The reality is that mother put in lots of cash, wife, little cash. Wife bought property and paid for remodeling with LLC cash but all is in her name, not LLC. The plan was/is to contribute property to LLC from wife but I am now dealing with the st cap gain (killer for tax) or loan not addressed in agreement.

Aaarrrggghhh!