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Hi, can an LLC borrow money to another LLC...

Resolved • Response time 1 minute

21 Oct 2021

Hi, can an LLC borrow money to another LLC and not pay taxes?
JA: Can you tell me what state the LLC is registered in?
Customer: Nevada
JA: Has anything been officially filed? If so, what?
Customer: No, nothing has been officially filed. Just looking for how it usually goes for now.
JA: Is there anything else the Lawyer should know before I connect you? Rest assured that they'll be able to help you.
Customer: Nothing as of the moment. Thank you.
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21 Oct 2021

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Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

Hello! Thanks for using JustAnswer. My name is ***** ***** I am an attorney ready to answer your questions with top-quality service. Just a few quick things before we get started:

  • I’m sorry to hear you are having these problems with your legal issue. I know that can be frustrating. However, we can get this resolved quickly;
  • We are transitioning to a new system to better serve you, so there may be a slight delay in my responses. Your patience is greatly appreciated.

Do you own both LLCs?

21 Oct 2021
Customer reply
21 Oct 2021
Hi, I appreciate your response. It is actually for my boss. He owns 2 LLC. His friend told him that if an LLC loans from another LLC, taxes don't have to be paidSo it would be:
Main LLC
2nd LLCMain LLC gives loan to 2nd LLCMain LLC deducts loan, reducing income, resulting to reduces taxes2nd LLC doesn't need to pay taxes on loan borrowed from main LLC
21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

Thanks1 Are there repayment terms for this loan as far as you know/

21 Oct 2021
Customer reply
21 Oct 2021
Not that I know of. Right now, he's just looking for some basic information. If this is possible and how accurate it is for the 2nd LLC to not pay taxes on loan borrowed from main LLC.
21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

Got it! I believe I have everything I need, but was there anything else you’d like to add before I answered? If not, I can begin working on your answer.

21 Oct 2021
Customer reply
21 Oct 2021
I think that is it. Thank you in advance. I appreciate it.
21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

You bet! I'll be with you ASAP!

21 Oct 2021
Customer reply
21 Oct 2021
Great!
21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

Thanks so much for your patience!

Legally, yes, the LLC can loan money to the other LLC.

It's critically important there be loan documentation. The reason is that if there is no loan documentation, then the lender LLC will have to potentially pay a gift tax.

The borrowing LLC does not have to pay taxes on the money if it's a loan. But if there is evidence (a written document) that it is a loan, then the IRS won't consider it income.

Please let me know if this has answered your question fully. I hope this information is helpful to you. If you need additional assistance or have follow-up questions, please reply to my message below, and I will respond as soon as I can.

21 Oct 2021
Customer reply
21 Oct 2021
I see, thanks for that information! I found this article online and I am not sure which infos I should also include in my report. Could you please help me take out only the important things I need to note? If you don't mind. :)
21 Oct 2021
Customer reply
21 Oct 2021
https://www.stimmel-law.com/en/articles/borrowing-money-your-own-business-some-cautions
21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

Sure thing! So dividends and distributions are taxable income as far as the IRS is concerned. So in this case, your boss would nee to make clear:

1. What the loan is for;

2. The amount;

3. Clarify that it is not to be considered dividend or a distribution from LLC #2; and

4. The repayment schedule for the loan.

If they do this, they can avoid IRS scrutiny.

21 Oct 2021
Customer reply
21 Oct 2021
Great! Oh, also, does it matter if the LLC is registered in NY then he'll receive the loan in Nevada?
21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

Thanks! NO, generally it doesn't matter what state its' in.

21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

*it's

21 Oct 2021
Customer reply
21 Oct 2021
I see. Lastly, do you have any other important information I could tell him about this matter? :)
21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle
Attorney

No problem! In my opinion, so long as he is clear on why he's loaning the money to his LLC in his loan documents, then he'll be fine. It will probably pass IRS scrutiny, but it never hurts to limit the legal liability by just having t in writing.

Did you have any other questions for me about this?

21 Oct 2021
Customer reply
21 Oct 2021
Gotcha! Thanks for your help. You've been really helpful. I think that is all for now. Appreciate it. Have a nice day!
21 Oct 2021
Lawyer's response
21 Oct 2021
Legal Eagle
Legal Eagle

You bet! Thank you for trusting JustAnswer with your question. If you have additional concerns or need me to clarify anything, please let me know. I am happy to help. My name is ***** ***** I go by Legal Eagle on this site. Once you log back in, you can go to the “My Questions” page, and you’ll see our conversation. There, you will have a chance to “Request Legal Eagle”. Type in your question, and it comes to me. You can also click the link below. https://www.justanswer.com/law/expert-dmwesq/.

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Customer rating:
Legal Eagle
Legal Eagle
Attorney
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21 Oct 2021
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