Amend 1065?

[JoshinNC]

That doesn't make them a

GENERAL partner as defined for SE purposes.

[luke]

facts and circumstances

We'll not get this "issue" resolved here but facts and circumstances will determine IF a partner is a "general" partner or a "limited" partner - trust me.....

[snowshine]

I think Josh has a valid point if we are talking about Investment LLC Partnerships or rental LLC Partnerships (w/o personal svcs provided, of course). Harlan is right about all other types. Perhaps we are all just talking around one another here?

[ChEAr$]

I think Josh has a valid point if we are talking about Investment LLC Partnerships or rental LLC Partnerships (w/o personal svcs provided, of course). Harlan is right about all other types. Perhaps we are all just talking around one another here?

Sure thing, snow. We should make a distinction between LLC's conducting active business operations with those formed just to hold title and rent out property.

My favorite combo to recommend these days is an LLC to hold the real estate and a sub s for conducting business operations.

[Super Mom]

What?

I have a 3 partner LLC. They're all listed in the articles as "managing members" (they really work there) and I've been distributing the profits for SE, now I'm thinking that's wrong??

[Edsel]

"Real" LLCs and LLPs

What is referred to in the cites provided by Josh is for the investment-type entities that were sold big-time in the 70s and 80s. This type of entity is similar to a REIT, namely there is at least one operating partner and thousands of "limited" partners who were called "limited" partners only because they were liable only for the amount of their investment and not jointly/separately liable for the debts of the entire organization. These things were available and in vogue long before the love affair between attorneys and LLCs began some 20 years ago. The investors were not subject to SE tax. The controlling document would always be a 1065 or 1120S, or some derivative of the 1120. When the tax code was changed in 1986, it just about killed these investment instruments because the major appeal of these things was to be able to take huge tax deductions under the prior law.

The LLCs of today are operating entities rather than investment vehicles. The old-style investment vehicles are still around but the overwhelming reference of an LLC today refers to State-ordained entities which are formed to provide protection but less structured than a full-blown corporation.

The IRS does not recognize these LLCs, other than to mention that they are "disregarded entities" and must choose to file as a "regarded" entity - i.e. a C corp, S corp, Partnership, or Proprietorship. If I am entering this fray as a referee, I believe Josh's research refers to the old-style limited partnerships, which flourished before the 1986 tax code. I believe an LLC which files as a partnership 1065 carries self-employment taxes on all partners except those who are by new definition passive. The "new" silent partners are not subject to SE tax, but perhaps worse are now subject to passive loss rules.

[ChEAr$]

I have a 3 partner LLC. They're all listed in the articles as "managing members" (they really work there) and I've been distributing the profits for SE, now I'm thinking that's wrong??

Not wrong since each one actively works in the business and therefore has self employment income.

Normally the Operating agreement designates only one as "managing member", but it looks like a Russian troika - government by committee. (grin

[Burke]

I have a 3 partner LLC. They're all listed in the articles as "managing members" (they really work there) and I've been distributing the profits for SE, now I'm thinking that's wrong??

You are not wrong. I'm with Chear$ on this one. Josh seems to be applying the principle that because it says LLC, everyone is a limited partner. That simply is not true. They have limited LIABILITY due to the company structure, but can be a general partner and subj to SE.

[Super Mom]

Thanks, I Was Sweating That This Close To The 15th!

[Henrij]

Use of Capital

What does "use of capital" mean in IRC Sec. 707(c) ?
Thanks

[JoshinNC]

I still say you're all wrong

and that an LLC member who does not take GP's is not subject to SE. We prepare dozens of LLC taxed as Partnership returns every year and never make the pass through income subject to SE. Never had a question on the first one. Guess I'll just have to wait until one is audited and then let you know how that works out. My E&O is paid up!

[Edsel]

Traffic Snafu

Josh, I remember driving up a one-way street the wrong way in Detroit one time. When the traffic lights unleased the traffic, suddenly I was confronted with three lanes of traffic coming right at me.

My wife said, "You idiot!! You're driving down a one-way street!!!!"

I responded, "Yeah, and I guess all of them are going the wrong way...."