Tax Distribution Provision In Operating Agreement

6. Withholding. Many company agreements expressly provide that the partnership complies with its withholding tax obligations. The agreement should also provide that sums withheld in the event of distribution to a partner are treated as being distributed to that partner for all purposes of the agreement. Partners should also decide how they treat taxes measured by a partner`s distributed share in the partnership`s net income or profit, but which do not correspond to the amounts distributed (as these taxes cannot simply be withheld from a current distribution). As a general rule, these amounts are treated as loans from the relevant partner to the partnership and/or as an advance on future distributions from the partner. In order to protect itself from the fact that members are forced to put their hands in their pockets to levy taxes on the company`s profits, an LLC may require mandatory tax distributions to members. . . .