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Advice for suing ex business partner

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darocknesmonsta

Junior Member
What is the name of your state (only U.S. law)? North Carolina

The backstory:

I started a small business with a friend back in the fall of 2007. We were a 50/50 partnership LLC. The type of business was welding/repair/metal fabrication. I had a regular full time job, and he was already doing this type of work so this was his primary source of income. He did most of the work and took all of the profit, leaving nothing for the business or myself. For 2007, 2008 and 2009 we had a local CPA file our taxes and the way he filed them I didn’t have to claim anything on my personal taxes (since I wasn’t drawing any money from the business anyways). For the 2010 return, my partner decided to have his wife’s sister handle our taxes since she worked for a firm up in Va Beach and she would do it for free. He didn’t tell me anything about the taxes and apparently I didn’t need to sign anything for them to be filed. During 2010 and 2011, we had a big job that we had agreed to work on together, except he was putting off working on that job to work on smaller jobs that paid instantly and I worked on the job by myself some. Towards the end of 2011, he finally helped me finish the job and we got paid for it. I took 2 separate checks for my work because we were taking partial payments for products we would finish and ship. I got a check for $2,000 and one for $3,000 in January of 2012. Well after getting the last check for that job, we had a falling out because I felt like I was being excluded from jobs on purpose so he could take all the money from them to pay his bills. I walked away from the business and our friendship deteriorated. The Friday before April 15th, he dropped off a letter and a form in my mailbox explaining that I had to file this form alongside my personal taxes. The form was a 605 IRS form I believe, and when I was skimming through it I realized that it was stating that I made close to $14,000 from the business in 2011. This was not true at all; I only took the $5,000. When I contacted the firm up in Va Beach, they told me I had to file it regardless of whether I got the money or not since we were 50/50 partners. Another interesting point is that I asked them about the prior year and they said he should have given me a 605 form for that year too, which he never did and never even told me about it. So there was a total of $18,000 that I had to claim of which I only received $5,000. We’ve been back and forth over the past year and I had to amend my 2010 and 2011 returns and I owe the IRS about $6,000. I’ve already paid the taxes on the $5,000; I picked that up on my 2012 return, so the $6,000 should be his tax. Since we are no longer friends and he’s broke most of the time, he’s refusing to pay me. My question is what do I do now? What kind of attorney do I need? Do I even have a case against him?
 


latigo

Senior Member
What is the name of your state (only U.S. law)? North Carolina. . . . .

Since you use the acronym it is assumed that this joint business adventure was organized as an LLC under North Carolina’s Limited Liability Company Act. If that is true, then you and the other guy are not "partners" in that business! You would be known as "members".

And this not a casual distinction as there are unique and sometimes harsh rules of law that effect the respective rights and liabilities of business "partners" that do not apply to the “members” of an LLC.

That said, the next “said” is that you are not going to find the answers you seek short of consulting with an attorney versed in business law that can begin by examining the LLC’s Articles of Organization and its Operating Agreement.

(Who can also take the needed steps to dissolve the entity, before you find yourself in more financial hot water.)

Depending on the contents of those documents and financial records you may or may not have a cause of action against the other member. But no one at this distance will be of any help.

In the meantime you might wish to read the laws under which this business was formed to gain some belated understanding of what you got yourself into 6 years ago.

You will find the Act at Chapter 57C of the North Carolina General Statutes.

Good luck
 

davew128

Senior Member
Without delving into the legal aspects of it being an LLC (which I consider wholly irrelevant here), its fairly obvious to me that you don't understand the first bit about partnership taxation. The money you received is not income (usually) nor is that the amount you should show as partnership income on your return (ever). Further, there is no Form 605, however there is Form 1065 for partnerships.

Rather than wasting time on exiting the LLC or walking away (which doesn't help your tax situation), you should probably speak to the CPA who prepared that return so she can EXPLAIN HOW IT WORKS TO YOU.
 

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