Partnership Loans

[Diane]

Client is in a Partnership. Loans the Partnership money as the cash flow needs it. The Partnership pays him back as the cash flow allows. They have not been paying (or calculating interest). He now wants to calculate the interest -- at 5%. I came up with an amortization schedule and calculated the interest from the beginning of the loans/paybacks. On the schedule I added the accrued interest to the principal balance of the loan since no interest had been paid. My questions -- is this the correct way to do this? And, for the paybacks in 2011 -- do I calculate all of the accrued interest (from the beginning) as interest income (1099-Int) and the balance of the payback as principal? I did not do his taxes in 2008, (when this began) nor do I prepare the Partnership tax return. I just enter info from the K-1.

Diane

[OldJack]

I expect this client/partnership is on the cash basis of accounting for tax. Therefore, for tax purposes you record interest only when interest is actually paid.

[michaelmars]

i would think it was up to the partnership to prepare any 1099-int's. Why would you want to Create taxable income for your client? Are you even sure that the partnership recorded it as a loan and not as a contribution with the payments being distributions on its books?

[Diane]

I don't do the books for the Partnership. This particular partner asked me to come up with a schedule with interest for his loan. I will discuss with him the accounting basis (cash or accrual) and inform him about the differences. I also will not prepare any 1099's for the partnership. I just wanted to be able to tell him what the consequences were in relation to the 2011 payments to him.

Diane