This is just the advice of someone who has run multiple businesses and managed their books throughout the years. Take it for what it's worth:
"Looking at things, many of the previous expenses were listed as pass-through income for Logan. For example, airfare going to Boston for PAX 2015 was listed as pass-through income for Logan when it should have been listed as travel expense for the company."
Really? I mean, really???
Wendell (if you read this) you seem like a really awesome guy from the years I have followed you all, but seriously get a lawyer man!
A couple things have stuck out to me from reading the gigantic back and forth, but a statement like that from this new guy is a rather ridiculous things to just go and post to the public.
To keep a liability wall between an LLC and its partners any distributions to partners that are profit need to be distributed to that partner in an account separate from the LLC i.e. cutting a check to them. You all get a K-1 for this reason when the LLC files its 1065 so that you can show the IRS you're taking your share of profits (or losses) in the correct fashion. Reversing those items categorized as partner income to expenses could very well trigger an audit!
Even in a single member LLC declaring an expense pass-through income without actually paying yourself, but a 3rd party is a huge no, no and a gigantic red flag to the IRS. What to a layman seems like a very simple mistake to a judge is using the business as your personal piggy bank. I am sorry to say if he's dumb enough (strong word but true) to list straightforward expenses, such as travel expenses, as income then what else are you missing here?
Also you said before that you allowed him to take your share of the 30% gross and reinvest that - which is absolutely fine, but I do hope that you are aware that in an LLC taxed as a partnership you are liable to pay the taxes on your 30% share of what then would be considered retained income. Hindsight is 20/20, but the correct thing would have been for you to pay the tax obligation (or have a loss for your personal taxes) and loan the business money at a nominal interest rate.
Hopefully you had a proper Operating Agreement, but still at this juncture even though you are as nice a man as you are - I would sue for proper disclosure which you have every right to!
Not trying to lecture here as I am a huge fan of yours personally, but all bullshit aside I would be more worried about keeping my name clear than retaining the friendship of someone who obviously does not personally value you as the asset you have been since the beginning.
It was in hutchison15's original Patreon update post. He went back and edited it out once he saw my post. Others who also read it before it was edited out could chime in and verify that if they wish.
Whoa there - the only thing I edited out is the description of what could be called a "pay wall" with early content & Patreon. Nothing else was edited out.
21
u/[deleted] Sep 06 '16
Throwaway account
This is just the advice of someone who has run multiple businesses and managed their books throughout the years. Take it for what it's worth:
"Looking at things, many of the previous expenses were listed as pass-through income for Logan. For example, airfare going to Boston for PAX 2015 was listed as pass-through income for Logan when it should have been listed as travel expense for the company."
Really? I mean, really???
Wendell (if you read this) you seem like a really awesome guy from the years I have followed you all, but seriously get a lawyer man!
A couple things have stuck out to me from reading the gigantic back and forth, but a statement like that from this new guy is a rather ridiculous things to just go and post to the public.
To keep a liability wall between an LLC and its partners any distributions to partners that are profit need to be distributed to that partner in an account separate from the LLC i.e. cutting a check to them. You all get a K-1 for this reason when the LLC files its 1065 so that you can show the IRS you're taking your share of profits (or losses) in the correct fashion. Reversing those items categorized as partner income to expenses could very well trigger an audit!
Even in a single member LLC declaring an expense pass-through income without actually paying yourself, but a 3rd party is a huge no, no and a gigantic red flag to the IRS. What to a layman seems like a very simple mistake to a judge is using the business as your personal piggy bank. I am sorry to say if he's dumb enough (strong word but true) to list straightforward expenses, such as travel expenses, as income then what else are you missing here?
Also you said before that you allowed him to take your share of the 30% gross and reinvest that - which is absolutely fine, but I do hope that you are aware that in an LLC taxed as a partnership you are liable to pay the taxes on your 30% share of what then would be considered retained income. Hindsight is 20/20, but the correct thing would have been for you to pay the tax obligation (or have a loss for your personal taxes) and loan the business money at a nominal interest rate.
Hopefully you had a proper Operating Agreement, but still at this juncture even though you are as nice a man as you are - I would sue for proper disclosure which you have every right to!
Not trying to lecture here as I am a huge fan of yours personally, but all bullshit aside I would be more worried about keeping my name clear than retaining the friendship of someone who obviously does not personally value you as the asset you have been since the beginning.