LLC Equity Investor

[carolf]

I have a partnership where one of the parties is an equity investor. He invested $160k in consideration for a 25% equity interest in the partnership. The agreement says that the investor "shall be paid twenty-five percent of the monthly net profits on a quarterly basis." The agreement also says that "Investor shall receive no security for his investment other than the equity participation..." He is listed as a member on the LLC agreement filed with the Secretary of State.

Both the manager of the partnership and the attorney's who drafted the operating agreement say that the investor paid $160k for the right to 25% of the profits for ten years and that the $160k does not need to be paid back.

My question, what do I do with the $160k as far as the capital account on the 1065? The attorney is adamant that the investment was not a capital contribution that should be included in the investors capital account.

I have never dealt with this before and would love any input.

Thanks,
Carol

[BOB W]

Right or wrong

Here is what I would do........... I would book the contribution as capital investment as it is the only way to buy into the profit sharing %. What happens down the road will be a tax loss, intentional or not.................