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Nov 05 2012
LLCs and Self-employment Tax

Posted in tax

A recent tax court case involving a married couple and one additional member further highlighted the difficulties in classifying income from an LLC as passive income.  The wife was given the membership in the LLC, rather than her husband, because her credit was better and it was used to secure loans. Her husband provided management services. The LLC reported payments made to the taxpayers during the years in question as guaranteed payments. However, on the couple's personal returns, the wife reported the amounts she received as partnership distributions that were not subject to self-employment tax because of her limited involvement in the LLC's operations. The Tax Court held that the taxpayers may not disavow the form of the transaction as reported on the LLC returns. In addition, the court found that the wife provided marketing advice, signed documents, and entered into contracts that caused her to be more than merely a passive investor. Lauren Howell , TC Memo 2012-303 (Tax Ct.).

There are cases where LLC members can have passive income from the LLC, but significant hurdles must be overcome to demonstrate that the income is not subject to self-employment tax.  To discuss further please call 781-438-6655.

For additional information on services provided by Thomas W. Bates & Assoc., CPAs, please go to www.twbatescpa.com.

Last Updated by Mike on 2012-11-05 09:38:34 AM

Thank you for visiting our blog.  While we work hard to keep our content informative and accurate, should you come across an apparent error or misstatement we would appreciate your feedback so we are able to correct the post.  Please be aware that certain information contained in a post may be time sensitive, and as often is the case, can become outdated.

The content of our blog often represents our professional opinion, but it may not apply to your specific set of circumstances, please contact your tax professional for more information.  What you find on this blog should not be taken as counsel and nor should it be considered as fact or absolute.

Comments on this website are the sole responsibility of their writers and the writer will take full responsibility, liability, and blame from any libel or litigation that results from something written in or as a direct result of something written in a comment.

Thank you for visiting our blog.  While we work hard to keep our content informative and accurate, should you come across an apparent error or misstatement we would appreciate your feedback so we are able to correct the post.  Please be aware that certain information contained in a post may be time sensitive, and as often is the case, can become outdated.

The content of our blog often represents our professional opinion, but it may not apply to your specific set of circumstances, please contact your tax professional for more information.  What you find on this blog should not be taken as counsel and nor should it be considered as fact or absolute.

Comments on this website are the sole responsibility of their writers and the writer will take full responsibility, liability, and blame from any libel or litigation that results from something written in or as a direct result of something written in a comment.

Thank you for visiting our blog.  While we work hard to keep our content informative and accurate, should you come across an apparent error or misstatement we would appreciate your feedback so we are able to correct the post.  Please be aware that certain information contained in a post may be time sensitive, and as often is the case, can become outdated.

The content of our blog often represents our professional opinion, but it may not apply to your specific set of circumstances, please contact your tax professional for more information.  What you find on this blog should not be taken as counsel and nor should it be considered as fact or absolute.

Comments on this website are the sole responsibility of their writers and the writer will take full responsibility, liability, and blame from any libel or litigation that results from something written in or as a direct result of something written in a comment.