August 30, 2020 at 1:35 pm #7769
We have invested in a Limited Liability Partnership (LLP) in India managed by an investment manager. We are from India and settled here. Investment manager is a value investor focused on Indian stock markets.
The investment manager will provide us with net asset value [NAV] in local currency (Rupees) every year. NAV represents capital appreciation or capital loss for the year. I know the procedure for converting local currency to dollars based on US Treasury Reporting Rates of Exchange.
At the end of 3 years, LLP might be dissolved or continued. We might receive a profit or lose capital if we decide to exit the partnership. The manager pays taxes for the LLP to Indian tax authorities every year. Investment manager uses an accounting firm in India for auditing the LLP and we receive audited NAV value every year.
One of the investors (also from India) is in the LLP and lives in California. His CPA is reporting the profit or loss from the LLP as “for the LLP, we’ve been treating as a K-1 from a partnership, and reporting share of interest/dividends/capital gain as taxable federal income.”
Should I follow the same approach? Please provide your comments and suggestions. Regards, Dabu.August 30, 2020 at 2:12 pm #7770Kaye ThomasModerator
A definitive answer would require knowledge in international taxation that is beyond my ken. That said, the approach of the California CPA seems likely to be correct.September 6, 2020 at 12:12 pm #7807
Thanks you Mr. Kaye Thomas for your comments. Regards, Dabu.September 18, 2020 at 12:28 pm #7847
I talk to our CPA and also with another investor who is a partner in the LLP. Following are their comments:
Our CPA: CPA wants to treat it as a passive income (increase in NAV) or passive loss (decrease in NAV) every year because there is no federal ID for the LLP as it is based in India
Another option suggested by an LLP partner living in the USA: “We are reporting as interest income and ordinary dividends. For LLP federal ID, we are saying that it is a foreign partnership and hence we are not filling up the EIN/federal ID.” Does this approach about federal ID valid?
The LLP is registered in India and has a “identifier” number issued by the tax authorities.
Please provide your comments and suggestions. Regards, Dabu.September 18, 2020 at 2:19 pm #7848Kaye ThomasModerator
Again, these questions take us into an area where neither I nor others who regularly post here can speak definitively. The second approach you mention seems to me more likely to be correct. In particular, I’m not aware of any justification for treating changes in NAV as you describe for the first approach.
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