Excluding LLC members from the self-employment tax

Article Abstract:

1997 proposed IRS regulations under IRC section 1402 do clarify the limited partner standards that will determine whether a limited liability company (LLC) member's distributive share is subject to self-employment taxes, but applying the standards may still require reference to state law. The regulations provide three functional tests for whether an individual is a limited partner and note that service partners will never be classified as limited partners. The tests focus on personal liability, authority to contract and material participation.

Limited liability companies

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Proposed regulations define 'limited partner' for self-employment tax purposes

Article Abstract:

The Proposed Regulations on self-employment tax pertaining to partnerships has a broad inclusion while appeal for exclusions would require a more rigid planning. The subjection of a partner to the tax depends on factors such as the level of participation in the partnership and the advance of a venture into the level or business or trade. These factors are open to manipulation by people who would like to collect more retirement benefits by paying the self-employment tax without engaging formally into the limited partnership.

Public Finance Activities, Taxes NEC, Analysis, Laws, regulations and rules, Tax administration and procedure, Tax administration

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Proposed Regulations Define 'Limited Partner' for Self-Employment Tax Purposes

Article Abstract:

This paper shows that the scope of the self-employment tax as applied to partners is wide with few exclusions, and that the proposed Regulations broaden the definitions of limited partnership and limited partner.

United States, Information services, Partnership

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