Partnership ? for the Wise Ones Around Here!

[Chrisbry]

Situation:

Partnership LLC went belly up. Partner #2 has left the country (literally) and will not respond to Partner #1's emails.

My client (Partner #1) personally paid the $1,000 loan + $140 interest that the partnership got from a 3rd party. Partner #1 also closed the ptr account and took the $47 that was left in the checking account to apply to this loan.

I'm interested in knowing some other viewpoints on this besides my own.

A. Show the loan as OTHER INCREASE (M-3 adj) and indicate: Distribution of Liability to Partner

B. Is the $500 (Partner #2's liability) + $140 interest less $47 cash deductible by Partner #1 on Schedule D as a Business Bad Debt?

Any other thoughts or suggestions?

[indyscott]

I think you're sort of on the right track, but what you call a "business bad debt" is not something that belongs on Sch D, I think. It really has nothing to do with Capital Gain or Loss. P1 contributed his own money to his own captial account to pay the 3rd party loan. That increases his basis in his partnership interest.

When you say the Partnership went "belly up" I think you probably have more accounting to do for winding up of the Partnership's affairs. When you close out each partners captial account, you'll know if they each have a gain or loss. Sounds messy.

[michaelmars]

SOUND LIKE a waste of time for $500. tfr amounts to part 1 basis dr loan payable cr capital for the 1m and take loss on 1040 upon closing of 1065. [partnership too small for m-3]