Nominee Interest and Sch C SMLLC

Technical topics regarding tax preparation.
#1
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I'm trying to figure out how this situation should be handled, and don't really know where to start, and was hoping someone could at least point me in the right direction (or, better yet, tell me the right answer).

A sole member LLC files on schedule C and receives interest income and associated 1099-INT forms from a number of banks. Pursuant to legitimate arms-length agreements with 3 entities (one 1065 LLC, two C-Corps, the owner of the SMLLC owns 50% of the partnership, ~80% of one C Corp, and ~90% of the other C Corp) the SMLLC owns 10%-20% of the interest from each of the given banks. The remaining amount of the interest is split (not evenly) between the other 3 entities. The bank account is titled in the name of the SMLLC and the sole signer on the account is the individual that owns the SMLLC. The individual has represented (to me) that the banks are all fully aware of the arrangement.

Because bank interest earned by a schedule C business goes straight onto the 1040, and the individual is subject to NIIT, I don't want all the interest to be attributed to the SMLLC, especially since they're going to take a hit on the 1065 interest as well.

I don't know whether the banks are going to issue 1099-INTs to the LLC/LLCs EIN or to the individual/SSN, but due to the complexity, and the due date of their own 1099-INTs, I don't want to have them stress at the time if the way the 1099s are issued are different than expected.

So, the questions are:
1) Is there anything preventing the individual/SMLLC from issuing a 1099-INT to the 3 related entities for their portions of the interest?
2) Does the passing off of the interest from the individual/SMLLC to the 3 related entities constitute a business expense (not ideal) or a reduction in interest reportable (ideal)?
3) If the bank issues the 1099-INT to the SMLLC and SMLLC's EIN, what party should issue the 1099-INT to the related entities?
4) Same as above, except for the bank issues the 1099-INT to the individual and individual's SSN?
5) Does the individual/entity issuing the 1099-INT have to issue a 1099-INT for every one it receives (one 1099-INT for each bank's 1099-INT it receives), or can it aggregate and issue one 1099-INT to each of the related entities?
 

#2
Nilodop  
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See the heading for Nominee Recipient, here https://www.irs.gov/taxtopics/tc403.
 

#3
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Thanks I looked at that already, but the information was pretty minimal and it just took me to the Schedule B instructions where the guidance also seemed to be lacking, so still lost on this one.
 

#4
MilesR  
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Yes, you file a 1099 as a nominee and then it's an adjustment on Sch B.
If its disregarded, then it's probably all the same on the personal return, but it might be better to issue your 1099's using the same EIN as how the banks reported it. If they reported under SSN then issue yours under the SSN.

You can probably issue 1 1099 to each recipient for their total interest share (for each group reported on SSN or EIN). It shouldn't matter that there were 3 different banks. The shares all "went" to your client and then the client (or SMLLC) paid it out.
 


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