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).