Discussion:Fodder for later...LLC's
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Discussion Forum Index --> Tax Questions --> Fodder for later...LLC's
| 27 March 2008 | |
| I am seeing people here refer to certain members of MMLLC's as "limited partners". I thought they were all limited partners in this business form. I don't think, I know they are. Are we creating distinctions in a MMLLC of limited/general partners? And, if so, is this only for the purpse of making an SE tax determination? For instance, as in the withdrawn regs? | |
RoyDaleOne (talk|edits) said: | 27 March 2008 |
| Good question. | |
| 27 March 2008 | |
| I think so, I have a few, best to check the members operating agreeement. | |
| 27 March 2008 | |
| Well, there are those pesky operating agreements, but there is also the statute. I just get the feeling that the legal side of this, and the tax side of this are on a collision course, with the tax side ahead by a few laps at present. De jure, they are all limited partners; what the heck is going on de facto, I am still taking in. It's just that the vocabulary is mighty loose, and what may serve a purpose when talking about SE tax, can lead to wrong conclusions in other areas. | |
| 27 March 2008 | |
| I have thought that for a while, not only because of the accountant/legal conflict. I hear from clients... my attorney said to create an LLC but I should talk to you first. When they hear of the SE tax disadvantages they then want to create an S corp. The LLC is state specific, so it is better in say.... Wisconsin than PA. Sometimes I think attorneys like LLCs because they are "easy", but if the MMLLC operating agreement is done properly it is anything but easy. Just look at the posts we see here & the conflicts and qustions about how to handle various transaction types in an LLC! | |
TheTinCook (talk|edits) said: | 27 March 2008 |
| A puppy dies every time you call a LLC member a partner. I think that people are conflating the limited liability that the LLC form provides to all members with the term "limited partner" however it's used by the code. From what I recall from my business law class, limited partners have to be entirely hands off. So I'm thinking that the important distinction for LLC's is member-managers versus members who aren't managers. | |
| 27 March 2008 | |
| It's the statute itself, not just the OA. The statute itself says they are all limited partners, by law. I think that should be kept in the background, it has to do with why this creature was created in the first place. If someone knows something I don't know, please tell me. You may want to use the term "limited partner" heuristically, in a small context, in regards to LLCs. | |
| 27 March 2008 | |
| its almost 1:30 - can't think of what heuristically means but isn't the statute different by state, therefore the answer could be 50 different answers (in theory). I think this is part of the confusion. | |
| 27 March 2008 | |
| A heuristic is a method to help to solve a problem, commonly informal. | |
| 27 March 2008 | |
| thank you for the vocab! My parents have boxes of vocab flashword that we used to use to quiz eachother for fun. (nerdy & weird, I know) My dad knows them all and I always feel I should know every word too, but I don't. I am going to bed now.... | |
| 27 March 2008 | |
| LOL. I think that is how it's being used. There won't be 50 different answers on this one. The whole purpose of the original LLC statute (Wyoming was it?), was to make them all limited partners. If we are going to do an analysis just on the SE tax issue, that's one thing maybe, but to the extent people start speaking of general and limited parnters inside an LLC, then I see trouble coming from that. Does being a managing partner, alone, make one a general partner in a MMLLC? I think not. General partner in LLC=does not compute, to me. | |
| 27 March 2008 | |
| CrowJD, you state that "The statute itself says they are all limited partners, by law." Where in the statute does it say all LLC members are limited partners? Where in the statute does it say anything about LLCs at all? | |
| 27 March 2008 | |
| There are so many unresolved issues with LLCs and they keep getting muddier rather than cleared up. I think every attorney (sorry, JD) who sets up an LLC, and they're generally quite fond of this entity type for whatever reason, should be required to prepare the first tax return. Then there might not be so many and so widely promoted. I went back yesterday and read the discussions/information on bifurcation and still without final law on how LLCs and the members are to be treated, it's still very scary to take even a little leeway. I'm afraid I have not been consistent in reporting, but have found that the smaller the operations/revenue the more 'aggressive' I am. I know that's not right as consistency must be applied. I guess one thing that I have looked at especially in the situation where a SP becomes an LLC, how do you take what's always been 100% subject to SE tax now suddenly can be 'bifurcated'? Or, a partnership where both partners are GP, all income subject to SE tax, becomes an LLC, now they can be treated as both GP and LP? Does that make sense? I used to say I hate LLCs, then eased up a bit, now I hate them again. | |
Death&Taxes (talk|edits) said: | 27 March 2008 |
| Don't hate the LLC, LJA, rather hate the smug attitude those who have them carry about with them, like the newest fashion.
I have a K-1 for a 21% owner of a building in an LLC that houses his employer, an S Corp he owns 11% of. K-1 shows a huge loss but he is checked as a limited partner. Were his income under 150K, would this rule out active participation? Yet I know he is the real mover and shaker of the place. His attitude, more or less, is 'that's why I have you to figure it out.' | |
RoyDaleOne (talk|edits) said: | 27 March 2008 |
| Smktax, CrowJD is discussing the enabling state statutes that create LLC's. | |
| March 27, 2008 | |
| Save the puppies! Kill only the kittens.
Here's the problem, Crow and you nailed it in the first post. It's legal against tax. The problem is that IRS refuses to treat it as a new entity, i.e. creating LLC specific rules and regs and forms. They instead, have declared! it to be a partnership unless you pick something different. So this legal entity, the LLC, which has members who are all limited liability members runs into the wall of IRS expediency which says, it's a partnership, pick your partners. Limited partners? Sure, fits. General partners? No, doesn't fit. Yet, that unseemly topic of reasonable comp and the sinking SS system...IRS says, well, SOMEONE has to run the thing, and that someone should be subject to SE tax. And there's the rub. A suit requiring IRS to recognize LLC's fully would be the right answer. Likely not gonna happen, so we have to fight out this whirlwind of opposing ideas and laws. | |
Death&Taxes (talk|edits) said: | 27 March 2008 |
| JR: the problem lies in Congress, not IRS. IRS cannot write new sections into the Code; they can only interpret the Code we have now. Seems to me this would be one concern for the head honcho in the Advocates Office. | |
| March 27, 2008 | |
| Good point. Which came first, IRS' refusal to recognize and not bother to ask Congress for help? Or Congress unwillingness and therefore told IRS to make something up. Let's hold all feet to fire and see who screams first. | |
