"Square peg, meet round hole": classifying LLC members as "general partners" or "limited partners" for federal tax purposes

Article Abstract:

The proper classification of limited liability company members as either general partners or limited partners for income tax purposes is best accomplished by a uniform approach focused on the rights, duties, and statutory authority of unincorporated entities. A clear understanding of federal tax rules, IRC provisions, and Treasury regulations applicable to general and limited partners, as well as the impact of state laws on the rights, duties, and obligations of various business entities' owners, will facilitate proper tax planning and entity classification.

Methods, Tax planning

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Check-the-box: the proposed regulations on entity classification

Article Abstract:

The IRS proposed regulations released under IRC section 7701 improve on Notice 95-14's check-the-box proposal by addressing one-member entity issues and developing rules for foreign entities. The check-the-box proposal allows unincorporated businesses that are not publicly traded to elect to be treated as either corporations or partnerships for federal income tax purposes. The proposed regulations identify election procedures, transition rules, and default rules, as well as defining which foreign entities will be presumed to be subject to corporate taxation.

Tax elections, Foreign business enterprises

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Section 469: material participation standards for LLC members

Article Abstract:

Members of limited liability companies (LLCs) should not automatically be treated like limited partners in limited partnerships for the purposes of the material participation tests under IRC section 469 passive loss rules. LLC members can participate in management freely, unlike limited partners under state law. The seven material participation tests set forth in the IRS regulations under section 469 should be available to LLC members, and they should not be limited to the three material participation tests available to limited partners.

Passive activity (Taxation)

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