Discussion:Bifurcation
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Discussion Forum Index --> Tax Questions --> Bifurcation
| 16 September 2005 | |
| I am looking for info on bifurcation used in the set up of an LLC so that there are 2 levels of investment. 1st for management-attracting Soc Sec tax and 2nd for investment level that does not attract Soc Sec or "Self Employment Tax". Can the same person have both? How would a guaranteed payment fit into this? The others, with no Guaranteed Pmt are treated as investors. I'm looking at a limited amount of information that points to a 500 hour line for "management" or managers (attracting the SS Tax). These LLC's have so much gray area and unknowns. However, I guess that allows for more creative flexability - why we get paid the big bucks!! Yea, right. I've seen an example of a medical firm where the doctors are in an LLC attracting the SS tax. The equipment is in an LLC being rented to the Dr.'s LLC and not attracting SS tax. Taking a passive or rental role, I guess. Any input would be helpful.Gary 14:38, 16 Sep 2005 (CDT) | |
| 20 December 2005 | |
| I see this all the time, but shop for a good attorney who has experience in preparing operating agreements for LLC's with 2 different types of members. The tax consequences should follow what is specifically laid out in the operating agreement and the operating agreement should set out the requirements for investor vs. manager, even if sometimes it's the same person. I wouldn't necessarily recommend a black line like how many hours a person works. Instead, consider focusing on the management duties and powers for the members who pay the SS Tax and treat the investors similar to lenders.
Both manager-members and investor-members can receive guaranteed payments. Guaranteed payments can be for services, subject to SE, or/and they can be for use of a member's "contributed capital", i.e. like an investor, not subject to SE. For the manager-members you could lay out specific duties and related "pay". For the investor-members, you could give them a % of gross revenue (but not net), % of operating cash flow, or some kind of "preferred return." There are some safe harbors for the second type of guaranteed payment. See Treg Reg. 1.707-4. For example, the same person can own a 1% managing member interest (this is what it's actually called) and a 49% non-managing member interest. We use this all the time when gifting to family members where the parent keeps the 1% to maintain control and gifts 49% to children/grandchildren through a gifting/estate plan. | |
| 7 April 2007 | |
| Discussion:LLC, SE Tax, and Bifurcation of Income | |
