Transferring money into and out of an LLC bank account

[Alyson Wolfe]

Hi- 

I have recently formed an LLC with my partner at the request of a hard money lender in order to get a loan, they also want to see my personal funds in an account under the LLC. If I transfer my personal funds into the LLC account for verification of funds and then back into my personal account right away-are there tax ramifications to doing this??

[Daniel Chang]

What the lender probably wants to see, is that you have properly set up an LLC / business entity and properly funded that entity. Now what you are proposing can be considered fraudulent if you are dumping money in to appear like you have funds within LLC with the intention of withdrawing right back out. Essentially you are misrepresenting to the lender that the LLC is capitalized.

There are a number of ways to legitimately transfer money in that is not taxable. The most common way is a capital contribution. If you contribute money to the LLC, that money becomes your equity in the LLC. Now if you transfer money in and then take it right back out, calling it a capital contribution and an owner's draw looks a bit fishy if it's done in succession. It's one thing to put money in, fund a project, have that project be a success (a flip for instance), and then at the end of the project withdraw money back out. It's another to put it in and take it right back out.

Whether or not the movement of money is taxable is dependent on how the movement of money is classified.  Obviously you would hire a CPA for this.  Your issue is more a legal one - misrepresentation/fraud and commingling of funds.