Series 22: Phantom Income

Phantom Income

Phantom income is income that is reported to the IRS for tax purposes but is not actually received as cash. Two common sources of phantom income among DPPs are undistributed income and foreclosure on a non-recourse loan.

Members are subject to phantom income when a DPP reinvests its income in the business rather than distribute it to its owners. The income is taxable, whether or not the members receive it in the form of cash.

In the case of foreclosure, the lessor (borrower) is not responsible for the