Reclassification of Distributions

Any non-Tax accounting topics go here.
#1
Posts:
44
Joined:
25-Nov-2014 3:04pm
Location:
FL - Florida
A single member LLC owned by John began business in 2018 and converted to a partnership in 2020. Jane loaned money to the company then converted the loan to equity in 2020. In order to cover his living expenses while getting the business off the ground, John had withdrawn more than he had contributed thanks to Jane’s loan and SBA loans, and some retained earnings both in prior years and during 2020. John wants to reclassify his distributions to an asset or expense account for presentation to lenders without creating adverse tax consequences.

I see the following possibilities. Are there other alternatives?
1. Reclassify the distributions as loan due from the partner
2. Take compensation (guaranteed payments)
3. Other possible asset for GAAP purposes?
 

#2
Posts:
1716
Joined:
28-Jul-2017 12:08pm
Location:
Somewhere out there...
Taking distributions with an SBA backed loan sounds like a no-no

Guaranteed payment would increase the book loss (or decrease the book income)
 

#3
eze  
Posts:
311
Joined:
8-May-2014 7:02pm
Location:
Grey Area, California
Loan due from partner at 3% interest with a documented promissory note.

Does Jane have a sister? I could use someone like that to support the lifestyle that I can't afford ;)
 


Return to General Accounting



Who is online

Users browsing this forum: No registered users and 12 guests