Oligarch Turo Funder - Do late withholdings?

Technical topics regarding tax preparation.
#1
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I would normally not handle such a client, but he was referred by a VIP client.

Client has a "friend" (non-US person) who was nice enough to fund about $400,000 for ~6 cars to purchase for use in the client's Turo business (sole prop).

I asked the client why they would do such a thing and he told me that they were nice and wanted to see him succeed, etc. :|

Sounds like a gift and a 3520 requirement at first glance.

But now I see that they paid him $30,000 in commissions out of the proceeds from the car rental. So they have an arrangement to where the non-US person is sharing in the proceeds and profits in exchange for the funding.

I'm guessing that this should be treated as a "loan"?

I imagine that some sort of withholding is required and the WH filings and deposit will be late.

Do you agree that a WH requirement is required? If so, do I demand the client gets a W9 (or something) from the funder, and then we file a late WH form for the amount of the $30,000 that is interest?

I don't think we are talking about much in the way of numbers here, If 1/3 is interest and 2/3 is principle, it's $10K of interest. 30% of that is $3300 in "late withholding". Even a 10% late penalty would be $330.

In your opinion, should I take this route...calling it interest and filing late withholding forms (and a deposit)?

(note: If the client will follow my advice, I will remain engaged. If they will not, I will send them packing regardless of the VIP client politics).
 

#2
Nilodop  
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Too vague. Is it a partnership? Is it a business owned by Oligarch with compensation paid to your client? Or any of several other possible arrangements.

Why do you use the term Oligarch?
 

#3
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I believe the funder is an individual - a non-US person.

The client is a sole prop.

EDIT: The funder gave the client money in advance, and now he client is paying them a portion of the proceeds. I assume this to end at some point once a certain amount is "returned"

I use the term Oligarch, mostly in jest, because they are form Eastern Europe and they apparently are extremely wealthy. I am also skeptical of their intentions. Are they really just being "nice"?

But then again, if their goal is investing in the US AND to evade taxes on any net profit, that would be a lot of work and risk for $3000 in taxes per year when they are very wealthy to begin with?

Regardless, it's not up to me to sniff these things out - my goal is to help the client to legitimately meet all requiring requirements.

Edit: Is my joke of referring the funder an "Oligarch" offensive? If so, please let me know and I will apologize and remove it.
Last edited by ItDepends on 15-Aug-2022 5:04pm, edited 1 time in total.
 

#4
Nilodop  
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No idea. Loan? Profit sharing agreement? Partnership?

Maybe not your job to sniff out, but I personally would want to know the actual deal, preferably documented.

No offense to me; maybe to the oligarchs who read it.
 

#5
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The challenge I face is that "they" don't know.

I have a meeting with the client soon, I will suggest that they make up their minds, give me the details, and then I will analyze the details and explain the correct way to file.

If they have no plan or preference, I feel like I should suggest a "loan" arrangement, if possible, as that would likely be the most favorable for handling their lack of withholding situation.
 

#6
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Needs to iron out intent.

If this is treated as a loan and not everything gets paid back will the client will technically, eventually have cancellation of debt income?
 

#7
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Is there's any paperwork about this money, like a loan or profit sharing agreement? It is up to your client to tell you why he received this money.

Because all the work is performed in the US, there would be a tax withholding requirement. There will be late penalties but maybe they can be abated under a penalty provision like the FTA. I don't know if the FTA allows for these type of penalties to be abated.
 

#8
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Andrew9901 wrote:It is up to your client to tell you why he received this money.


Often, reasons are fluid and nonspecific when the parties are less than arms' length. e.g. Friends and family. It's up to the practitioner to divine intent. To bring the parties together, let them know this is serious, to inform of various advantages and detriments and to come to a mutual understanding that allows preparers to take a tax position. That's the value we provide.
 

#9
Nilodop  
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I love it! Reasons are fluid. What answer do you want for me to get the best tax result?
 


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