LLC - Return of Excess Capital Contribution

USA Discussion in 'Technical Queries' started by jwcmsrams, Oct 26, 2018.

  1. jwcmsrams

    jwcmsrams

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    BACKGROUND
    An LLC, taxed as a partnership, was started by 2 members. Member A contributes $400 and Member B contributes $600 to start the business ($1,000 total). Since Member A had the idea for the business, both partners agree that profit/loss allocations AND periodic member distributions of cash flow will be 50/50 (as opposed to 40/60 as the capital account balances would suggest). The operating agreement also notes that any liquidation distribution will be made in accordance with positive capital account balances pursuant to Treasury Regulation 1.704-l(b)(2)(ii)(b)(2).

    After 1 month in business, the members determine that the $1,000 originally contributed was too much and only $800 was needed to fund their startup. They elect to immediately return the $200 of excess contributions that were made.

    QUESTION
    Should the $200 excess be returned i) on a 50/50 basis as a standard distribution or ii) with 60% of the excess amount going to Partner B in accordance with the capital account balances?
     
    jwcmsrams, Oct 26, 2018
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  2. jwcmsrams

    Becky Administrator

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    Is this a study question?
     
    Becky, Oct 26, 2018
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  3. jwcmsrams

    jwcmsrams

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    No, it's a real situation and I'm trying to figure out how to account for it and what amount is owed to each member. I simplified the numbers/situation to illustrate the concept.
     
    jwcmsrams, Oct 26, 2018
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