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Loan from partner to partnership??


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#1 cpabsd

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Posted 03 April 2009 - 03:47 PM

Both partners put in $15,000 in November to have some cash available if needed. They put it in a savings account in the business name. I've never seen a Loan to partner on the partnership books. Is this allowed. They hope to be able to pay it back sometime in the future. This is a pretty new business. I think it is more like Equity but want to be sure before I treat it this way.

Thanks.

#2 mcb39

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Posted 03 April 2009 - 03:54 PM

Doesn't it just increase each of their capital accounts? It is capital contributed on Sch M2. If they take it out, it will be a distribution.

#3 michaelmars

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Posted 03 April 2009 - 04:10 PM

please don't be insulted but you need to quick review of basic partnership accounting, marilyn is correct in how to handle it in this case.

before you do next years return which will have activity and more contributions and distributions you need a brush up on how a capital account works.

#4 RoyDaleOne

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Posted 03 April 2009 - 05:14 PM

See Regs. Sec. 1.752-2( c ).

#5 cpabsd

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Posted 03 April 2009 - 05:30 PM

I knew it should be added to capital. That is actually how I treated it. However, when a client wants it handled differently and we are as tired as we are this time of year, it is nice to confirm the treatment with other professionals. I have never had a partnership with a loan from the parnter. This is just how the client thought it should be handled. We all need to be reaffirmed in treatments sometimes. I am a sole proprietor and have no one elst but those on this board to run things by. Thanks to those who gave positive responses.

#6 mcb39

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Posted 03 April 2009 - 05:40 PM

I knew it should be added to capital. That is actually how I treated it. However, when a client wants it handled differently and we are as tired as we are this time of year, it is nice to confirm the treatment with other professionals. I have never had a partnership with a loan from the parnter. This is just how the client thought it should be handled. We all need to be reaffirmed in treatments sometimes. I am a sole proprietor and have no one elst but those on this board to run things by. Thanks to those who gave positive responses.



You are welcome, Bonnie. We are here to help each other and we all need it at one time or another. I have a "new" second year partnership and I cannot believe some of the questions they ask and some of the things they say. Last year they "forgot" to tell me that they had paid $60,000 for the Business. This was after it was assembled. Of course, they liked having that amortization deduction. I was hoping they wouldn't come back this year. No such luck, but no questions either.

#7 RitaB

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Posted 03 April 2009 - 05:43 PM

I knew it should be added to capital. That is actually how I treated it. However, when a client wants it handled differently and we are as tired as we are this time of year, it is nice to confirm the treatment with other professionals. I have never had a partnership with a loan from the parnter. This is just how the client thought it should be handled. We all need to be reaffirmed in treatments sometimes. I am a sole proprietor and have no one elst but those on this board to run things by. Thanks to those who gave positive responses.


A couple of years ago, I posted my amazement that a pastor making $45,000 wages with $20,000 HA qualified for Retirement Savers Credit. I thought there must be a mistake with the software. An expert told me not to be insulted, but perhaps I should send my client to someone with more experience with clergy taxes. I do a lot of pastor returns, have for 14 years now, and I still question why a person with $65,000 income would get that credit.

We can't all know everything. Keep asking, cpabsd!

#8 Lion EA

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Posted 03 April 2009 - 07:13 PM

My partnerships are pretty profitable lately, so I haven't had that situation for a long time. But, why can't a partner loan the partnership some money to get through a rough patch, to pay payroll taxes, or pay down high interest credit card debt, or whatever, and expect to be repaid as they become more profitable? Why can't you have a Loan From Partner on the Balance Sheet?

#9 mcb39

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Posted 03 April 2009 - 08:27 PM

My partnerships are pretty profitable lately, so I haven't had that situation for a long time. But, why can't a partner loan the partnership some money to get through a rough patch, to pay payroll taxes, or pay down high interest credit card debt, or whatever, and expect to be repaid as they become more profitable? Why can't you have a Loan From Partner on the Balance Sheet?



I think that it is the structure of Partnerships that any money contributed goes to the capital account of that partner. I know of partners that put money in and take it out later in the year or the next year as a distribution. This is not a taxable situation because of the pass-through laws of the Partnership. I know I heard a gazillion years ago that Partners cannot make loans to the Partnership. I assume this means interest bearing loans. My business, on the other hand, has loaned money to my husband's Partnership and is treated as such with an amortization schedule set up and interest paid. I receive a 1099 int from them at the end of the year showing the amount of interest they paid and I have to claim it as income. I could be wrong about those old rules, but no time to research it now. There may be ways to work around it but we always try to keep things even.

#10 schirallicpa

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Posted 04 April 2009 - 05:02 PM

An advance to a partnership can be either a loan or a capital contribution. The advance - if a bona fide debt, should have a fixed pymt date, and provide adequate stated interest. The creditor-partner reports interest income.

Partners make loans to their businesses all the time. But remember the loan increases the partner's basis only by an amount equal to his share of the liability. (Sometimes a nonrecourse loan from a partner may be required to be allocated 100% to that partner. )




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