An email from IRS counsel rarely gets publicity, but one particular email released November 1 demonstrates the potential consequences of failing to maintain documentation when a partner lends money to the partnership.
Even when partnerships can avoid the tax from an imputed underpayment by pushing out the tax liability, they’re often forced to pay thousands of dollars in fees to professionals who represent them before the IRS and help them make push-out elections. Individual partners would have extra compliance costs associated with the push-out election as well.
The alternative is much simpler: Get proper advice early and have a loan document in place. A loan agreement goes a long way toward proving that a bona fide obligation exists, particularly regarding money loaned from partners.
