Should my client who is a single member LLC, (but has an investor who's loan is repaid when the business is sold for a portion of the sales proceeds) file a 1040 or a Partnership return? Can the investor who gets zero share of profits and losses until sale have a basis on the K1s?
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You should not rely on what the parties call it but review the document for intent, whether it was a bona fide loan that was evidenced by documentation, whether the terms are comparable to those in the market, enforceable, and were actually carried out, whether interest is chargeable at AFR at a minimum, and how the related transactions were recorded on the books. You should be able to trace back from the documentation and the books what the difference is.
Still an AllStar
A partnership, by definition, has two or more partners.
If this IS a partnership, then have the client provide a copy of the partnership agreement. Which, *should* document the capital contributions.
*The client says* isn't really good enough documentation for your file....
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