How does a sales charge that comes out before money goes into a fund affect the investor's basis?
When investing in LLCs, there are two types of basis that need to be accounted for. Inside Basis and Outside Basis. The inside basis is the investor's portion of what the fund paid for the investment. This amount is net of the fee and is usually the same as the capital account balance reflected on the K-1. The Outside Basis is what the investor paid to get into the fund (including the fee). This amount is not reflected on the K-1s because the sales fee comes out before money goes into the SPV, and the investor (or his CPA) has to account for that separately.