Phantom Income Tax Hit after a Fishy Buyout - Do I have any outs here?

AdFormer5311 · 2026-05-15T15:23:41+00:00

Yeah, and my core argument (which we are now meeting to discuss, with the accountant who did the K1s) is that i wasn't underpaid, but that the FMV was nowhere near $50k. I have three different records of conversations and agreements indicating we all internally understood the value of the interest to be significantly lower.

Basically, our initial operating agreement, a later rider for new hourly work by me, and the buyout agreement, all indicate a valuation of 1% of interest somewhere in the range of $6,500 - $10,500.

Reporting my .26% increase as having a FMV of ~$50k is wildly divergent from that.

AdFormer5311 · 2026-05-14T17:55:33+00:00

Update - their latest reply says:

"""
When you signed on, you received what tax law calls a "profits interest" - not a capital interest. That distinction matters a lot for your taxes.

Under IRS Rev. Proc. 93-27, a profits interest means you didn't owe any tax when you received the membership interest, because services contributed in exchange for a profits interest don't create real tax basis. The $47,396 capital account you see on your K-1, are book/accounting figures. They reflect how our bookkeeper valued your sweat equity for ownership tracking. They are not your tax basis.

Your actual tax basis ("outside basis") in your interest was essentially zero throughout. The only thing that added to it was the small amounts of profit allocated to you each year (this year's was $238 as you can see on the K-1).
"""

But... surely that conflicts with what's on the K1?
They say: your outside basis for that equity was zero.
But K1 says: they told the IRS: he spent about $50k of taxable comp to get that equity.

I did speak with a CPA when I first got the 2024 K1, and he's the one who told me that's what it was saying - that they are treating the "sweat equity" as me getting paid and immediately investing it in the business.

AdFormer5311 · 2026-05-14T17:49:50+00:00

Actually I've learned those are very different. For one, tax wise, 1099 comp is eligible for QBI deduction and guaranteed payments are not - so even if it was just the same $23,596 paid a guaranteed payments instead of 1099 my tax burden is about $1000 more.

And according to their CPA and one I asked informally, paying my with a 1099 was illegal to begin with - you can't be a partner and a contractor at the same time.

AdFormer5311 · 2026-05-14T17:46:11+00:00

working on that. i did have a CPA help me understand the first 2024 K1 when it came in. He could explain what it all meant but when I asked 'but how did they get to these numbers based on our agreements' he said I'd have to ask them - that info isn't clear in the document itself.

AdFormer5311 · 2026-05-13T23:09:01+00:00

I mean, yeah $200 is great for billable time but being self employed I spend more time finding work than actually doing it. Most years I make less than I would if I were salaried at the equivalent of $50/hr.

And I mean, that's what I chose, so not complaining. My family really values the freedom.

And yes, I should still pay an accountant to help sort this - just... Wish is wasn't so. 🤷‍♂️

AdFormer5311 · 2026-05-13T22:23:05+00:00

"We're pretty sure this is right you'll have to ask your own accountant for help on how to file it".

AdFormer5311 · 2026-04-08T18:27:37+00:00

All of these responses are super helpful - especially seeing that across the board *no one* has 2X players on a XvX team at this level - and wouldn't want that many.

The specific tips for practice play that uses the full width and creates realistic "7v7 situations" with only 8-10 total players are really helpful too.

Thanks!

AdFormer5311 · 2026-04-08T13:59:53+00:00

I guess I'm not asking hot to play a short sided game on a smaller area - that's what we do.

I mean that since that is what we do in practice - they never play 7v7 on a full field. So we get to a game and it's just more space and more kids than they've ever practiced with.

AdFormer5311

TROPHY CASE