SELF-EMPLOYMENT TAX OF LLC MEMBERS

By , June 13, 2017 8:45 am

Most multi-member LLCs are taxable as partnerships.  A key task of lawyers forming LLCs is often to minimize the Self-Employment Tax exposure of the members of these LLCs.  The post under the link below discusses a recent Tax Court case addressing the SET liability of the members of a multi-member LLC whose members were lawyers, and it finds that because all of these functioned like general partners of their multi-member LLC, all were liable for that tax.

However, the post does not discuss the usefulness of Prop. Reg. § 1.1402(a)-2 (the “Prop. Reg.”) in protecting from SET liability the members of multi-member LLCs taxable as partnerships.  The IRS has twice stated in public forums that the Prop. Reg. is its audit guideline for the SET liability of partners in entities taxable as partnerships.  Thus, the Prop. Reg. is a powerful tax-avoidance tool for LLC lawyers and their clients.

Here’s the link:  http://www.taxlawforchb.com/2017/06/self-employment-tax-llcs-the-limited-partner-exclusion/

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