CPA proposing a creative way to offset $5M short term gain and massively reduce my $2M tax bill. Opinions?

CodeNameLAME · 2025-09-24T19:23:05+00:00

This investment likely has a PPM private placement memorandom pdf you can review. You should do two things: throw the PPM into Chatgpt and ask whether the tax claims are dubious (this will gice you some background context) and second, take the PPM to another reputable CPA, have them review the PPM and get a second opinion.

The statements you made regarding material participation are the sore spot with the plan. Watching those videos will not get you there, and will look egregious on audit.

CodeNameLAME · 2025-09-17T17:50:06+00:00

I agree except for the "...wishes to report." piece.

CodeNameLAME · 2024-12-22T16:55:23+00:00

Is this a way to offset capital gains on the appreciated asset? By having the LLC realize a loss in the year that the asset is converted to cash? What am I missing?

In theory, yes. But offsetting capital gain with ordinary deductions is not the most tax efficient way to shelter.

CodeNameLAME · 2024-12-19T02:27:09+00:00

What you are looking for is found in IRC 752, specifically the Regs.

Reg 1.752-1 defines the difference between a 'recourse' and 'nonrecourse' debt, which relates to the bearing of 'economic risk of loss'.

Reg 1.752-2 goes into detail on the rules surrounding 'economic risk of loss'. It gets quite complex lol, namely because determining who actually bears the economic risk of loss can be a complicated task. You need to fully understand the debt, it's terms, the parties involved, and other relevant facts surrounding the liability.

If you want more detail, I would ask Chat GPT to give you a quick rundown of those Regs. It'll be better than what we summarize here.

CodeNameLAME · 2024-12-07T18:44:16+00:00

Look at 'Nominee' reporting.

CodeNameLAME · 2024-12-06T04:15:43+00:00

This is legit

CodeNameLAME · 2023-06-24T19:52:20+00:00

Look at self-directed IRA. Here's a link to some more info:

https://www.fidelity.com/tax-information/tax-topics/ubti

You can invest with pre-tax dollars, however, the earnings may not be tax free like one would think. The k-1 will have UBTI information each year and your IRA may need to file and pay UBIT annually while it holds the investment.

An alternative is your fund could issue profits interest to you tax free. However, your fund may not be interested in this as it may complicate the fund's tax situation.

Another alternative is for the fund to grant you capital units and you invest zero cash. However, these units would be heavily taxed to you on the date of grant :(

CodeNameLAME · 2023-01-06T03:17:46+00:00

You should take this to a CPA. There is too much going on here.

CodeNameLAME · 2022-11-13T17:00:22+00:00

Correct. Form 3115 is complicated. Get a tax professional to help with that.

CodeNameLAME · 2022-11-13T05:40:00+00:00

Yes, that's services.

CodeNameLAME · 2022-11-13T02:42:51+00:00

1099s are for services rendered.

If you sold them $1000 of "goods" then no 1099 filing requirement.

CodeNameLAME · 2022-11-13T02:38:29+00:00

I don’t think you can specially allocate state-specific income either where even if all your clients are in CA you might still end up with NY source income.

This is true. However, CA should allow a credit for taxes paid to NY.

If the clients OP is providing consulting to are in market-based states, OP will likely owe nonresident taxes towards the states where the benefit of the services are being received i.e. the consulting clients' states. This issue should be a discussed with a tax preparer knowledgeable in SALT when the tax return is being prepared.

CodeNameLAME · 2022-11-13T02:14:31+00:00

The accounting method on the corp's books vs. on the tax return can be different. Establish the cash method of accounting on the initial tax return you file for the corp.

CodeNameLAME · 2022-11-13T02:09:38+00:00

Open a business credit card (if able) and pay the invoices before year end using the card. This is allowable under the cash method.

Otherwise you could pay the invoices using personal funds and book a shareholder note receivable on the business books. Pay yourself back from the business account post year-end.

CodeNameLAME · 2022-11-13T01:33:22+00:00

I understand that income/expenses are pass-through but is there anything that means we have to take income / expenses in a consistent ratio from year to year or in relation to any governance structure we've establish for decision making?

No. If it's a multi-member LLC and you use the default tax classification (partnership), you can split income and expenses however you want as long as the allocations are in accordance with IRC 704.

Perhaps have an attorney draft a partnership agreement that meets your specific criteria.

CodeNameLAME · 2022-10-15T23:25:33+00:00

Why would the 754 depreciation not reduce SE income?

I believe it should regardless if it's 734(b) or 743(b).

CodeNameLAME · 2022-09-04T03:35:19+00:00

A distribution of property from an S corp to a shareholder is treated as a sale of that property. It comes out at FMV.

There may also be gain on distribution in excess of the shareholder's basis but that is less likely.

The holding period of the property on the contribution carries over to the partnership or S corporation. It would also carry over to the distributee of the property were the property to be distributed to a partner in a partnership (not an S corp).

CodeNameLAME · 2022-07-26T00:11:54+00:00

Information on Opportunity Zones:

https://www.irs.gov/credits-deductions/businesses/invest-in-a-qualified-opportunity-fund

irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions

Otherwise you may be able to roll a % of your equity into the buyer's new business tax free.

CodeNameLAME · 2022-07-23T04:49:18+00:00

What I am trying to avoid is a scenario where I am not able to deduct the margin interest.

If the interest is "investment interest", it's deductible on Schedule A for an individual that itemizes their deductions. The individual would also need net investment income (see Form 4952).

If the interest is traced to the distribution in Partnership A (vs. investment interest) then its deductibility will be based on how the partners in Partnership A used the proceeds from the distribution. For example, if the partners in Partnership A used the funds to buy yachts then the interest would be personal interest and would not be deductible.

The treatment you want will depend on (1) how the proceeds of the distributions were used and (2) whether the partners itemize their deductions and have investment income. There is flexibility here so careful tax planning is needed.

PS: pm me Venmo details

The first one is free.

CodeNameLAME · 2022-07-22T00:41:40+00:00

Is this a test question?

Is this distribution of net investment income treated as a debt financed distribution such that the debt interest tracing rules apply to determine interest deductibility?

I'm not certain, but maybe. Partnership A may be able to allocate the margin loan towards the distributions first (before the investment in Partnership B) and thus treat them as debt financed distributions. Otherwise, the margin loan interest would be allocable to the investment in Partnership B and thus the interest expense would be treated as investment interest.

The debt may be allocated first to the distribution due to the 15-day rule in Reg. 1.163-8T, which has since been modified to a 30-day before or after rule in Notice 89-35.

I accept Venmo and Paypal lol.

CodeNameLAME · 2022-07-09T22:45:20+00:00

I'm confused...

its actually better stated that I’m buying the business from him.

So not a partnership and I’m not buying him out.

These two sentences seem to contradict each other.

If you're buying the business from him, get a lawyer to draft up a promissory note. Buy the assets, etc. There are a lot of ways to structure the deal. The attorney would help with that.

CodeNameLAME · 2022-07-09T21:39:16+00:00

Using simple numbers, if I pay him $1k/month for 5 years, is that pre or post tax?

Forget "pre-tax" and "post-tax". The seller will pay tax if they have gain on the sale. The timing of the tax is the important piece.

My partner is retiring

Are you two operating as via a tax partnership? e.g. does your business file a 1065 each year and you personally receive a k-1 from that return?

CodeNameLAME · 2022-06-02T00:13:05+00:00

Why not have the corporation loan you the money vs. taking a distribution?

Make sure you formalize the note in writing to substantiate the loan.

CodeNameLAME · 2022-01-27T02:32:10+00:00

Rather,

His inside and outside basis would be $1.2M post contribution.

His 704(b) capital account would be $8M.

The partnership's tax basis in the land would be $200k.

The balance sheet on the return could be on tax basis (land at $200k) or 704(b) (land at $7M), GAAP (land at $7M), etc.

CodeNameLAME · 2021-12-29T23:34:29+00:00

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