When buisiness partners split

[bigd43606]

What is the name of your state (only U.S. law)? OHIO

Well.... I'll start off by saying this is the second time i posted about the problem. I feel I was overly broad and what I am looking for has changed a little.

OK here is the situation, my father and I bought an apartment building a few years ago as an investment. We run this thru an LLC. The original idea was it would be a 50/50 ownership in the LLC. I would run it and he would provide the capital(as he lives out of state). Well things did not go as planned and we had one dimal year after another. Well my dad decided I didn't have the time and was not do a god job. So he hired a management company and pretty much took over. This worked out for me as I am getting married soon and plan on starting a family soon after that. Well my dad sent me a letter from a attorney asking me to sign my half of the LLC to him. Mostly he is interested in deducting 100% of the losses on his taxes. I have no problem giving him this as I have cut my lost time and a small amount of money to a learning experiance. Before I met my fiance I would have signed it away in a heart beat. But now i have something greater than me to think about. My soon to be wife and eventual family.

I have a small problem with signing away control while still having the liability of the mortgage. My dad thinks I am being silly and says I can trust him. Which I do, but how would things be handled if something happens to him.

I need talking points on how this can effect me, in any way. I also need suggestions. Him refinacing in his name is impossible, due to the tightness of comercial loans. and we definatly can't sell it. (there would be a huge lose) This has become a big bone of contention and I would like to find a solution before my wedding.

Any help or advice is greatly appreciated

Thanks,

Don

 

[bigd43606]

I need help

Now he is threatening me. He says if i don't just sign the papers hell default on the mortgage. I am not able to pay this mortgage and under his leadership ocupancy has fallen to 50% in this eight unit building. Should I sign these papers just to appease him? Should I consult an attorney? (I don't have the money for that)

 

[Machinist]

Now he is threatening me. He says if i don't just sign the papers hell default on the mortgage. I am not able to pay this mortgage and under his leadership ocupancy has fallen to 50% in this eight unit building. Should I sign these papers just to appease him? Should I consult an attorney? (I don't have the money for that)

The Internal Revenue Code applies in 2 parts
1. Your Dad can deduct passive losses only against passive income (IRC 465)

2. Your Dad cannot deduct more than what he is at risk (the amount of money and the adjusted basis of property contributed to the LCC, plus the amount of any funds borrowed by the LLC with respect to which the member either is personally liable or has pledged as collateral property that is not used in the company's business (IRS 469)

If you transfer your interest the LLC dies and he cannot carry forward the losses. IRC § 708(b).

+++
LLC is very flexible, you can agree to allocate losses. You don't need to transfer your interest to him to do that. You need an agreement allocating losses. I'd ask that his attorney draw one up to reflect your father's $ contributions and your $ and service contributions to allocate losses.

PLUS
Your Dad cannot write off your losses because he can only deduct up to his basis and for what he is personally liable. Basis is how much he contributed. Plus because you have a management company, the losses are passive losses and are thus only deductible against passive income. Your Dad will have to carry his loss forward unless he has some passive income elsewhere.

I assume you guys didn't create an operating agreement. So losses are defaulting to 50-50. You just need to agree to change that to reflect % of $ contributions (IRS will accept that), which you can because it sounds like your Dad is contributing most of the capital. For instance you contributed services and he contributed capital, etc.

Otherwise, how much $ have each of you contributed? Did you get a salary?