I have an LLC that began a year ago owned by a couple. They purchased a Franchise Service Business with an exclusive territory (Only one Franchisee per area/region). The Franchise sold to and was absorbed by another franchise, unbeknownst to my client until it was absorbed. Now they have a smaller territory under the new name. No additional purchase price, just a change of name and territory adjustment.
My client decided to partner with another couple under this new franchise name and form another LLC, filing as a 1065. First partner had initial investment of $75K, and is transferring the buy in amount into start up fees for new Franchise. The new couple is to pay 40% eventually, as they are the labor part, and thus signed a Promissory note for 40%.
The initial client wants to now amortize start up/purchase amount in new company. My question is twofold:
1. Being that he already amortized a portion of start up under initial company, would his start up amount be the balance of what was not previously amortized in first company?
2 If he depreciated the amount now, when the second couple pays Promissory note, will they be allowed any amortization of their investment, or would it be a capital contribution, excluded from income?
My client decided to partner with another couple under this new franchise name and form another LLC, filing as a 1065. First partner had initial investment of $75K, and is transferring the buy in amount into start up fees for new Franchise. The new couple is to pay 40% eventually, as they are the labor part, and thus signed a Promissory note for 40%.
The initial client wants to now amortize start up/purchase amount in new company. My question is twofold:
1. Being that he already amortized a portion of start up under initial company, would his start up amount be the balance of what was not previously amortized in first company?
2 If he depreciated the amount now, when the second couple pays Promissory note, will they be allowed any amortization of their investment, or would it be a capital contribution, excluded from income?
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