Discussion:Can LLC consist with only limited partners?
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| {{ForumReplyPost|UserID=Harry Boscoe|Date=10 August 2009|Text=''"...there is no further need to designate some partners as Limited and others as General...it really doesn't matter."'' writes TaxMaster. | {{ForumReplyPost|UserID=Harry Boscoe|Date=10 August 2009|Text=''"...there is no further need to designate some partners as Limited and others as General...it really doesn't matter."'' writes TaxMaster. | ||
| TaxMaster should read IRC Section 469 and the <u>Garnett</u> case, mentioned above, I think. [Cite: <u>Garnett</u>, 132 T.C. No. 19]}} | TaxMaster should read IRC Section 469 and the <u>Garnett</u> case, mentioned above, I think. [Cite: <u>Garnett</u>, 132 T.C. No. 19]}} | ||
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| + | {{ForumReplyPost|UserID=Sandysea|Date=10 August 2009|Text=But does not the initial 1065 (partnership) return indicate who is a general or limited partner? I hate LLC's, but if they file as a partnership and one is deemed to be a general partner, does this not refer back to a limited partnership with only one general partner? If ALL partners are limited, is this not a limited liability partnership? | ||
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| + | LLC's were the work of the devil if you ask me :) | ||
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| + | }} | ||
Revision as of 17:12, 10 August 2009
Discussion Forum Index --> Advanced Tax Questions --> Can LLC consist with only limited partners?
Discussion Forum Index --> Tax Questions --> Can LLC consist with only limited partners?
Pink Pearl (talk|edits) said: | 5 August 2009 |
| New client for this year (2009) has filed in prior years as LLC on Form 1065. Three parters (60%, 20% and 20%). Farming operation (Sch F used) with net income of over 500K and no payroll, mgt fees, etc on return. Prior CPA filed K-1's showing all members as limited and no self employment earnings. I know the SE issue is cloudy regarding LLC's but someone in the partnership has to pay the bills and make the partnership decisions. Does an LLC have to have at least one general partner??? Thanks.. | |
Pink Pearl (talk|edits) said: | 5 August 2009 |
| trying to fix question to read "Can LLC consist with only limited partners?....but not sure how to... | |
Pink Pearl (talk|edits) said: | 5 August 2009 |
| and the GP would be liable for some/all of FICA on his earnings I guess?? | |
| 5 August 2009 | |
| The G/P in most cases would be drawing a W-2 salary, with the rest (maybe) on K-1. | |
| 5 August 2009 | |
| By definition, I think all members of an LLC have limited liability. In some cases, the LLC designates a managing member, but I believe that person can still have limited liability.
To answer your question regarding the SE issue, it looks like the best reference is Proposed Reg 1.1402(a)-2(h)(2). This essentially states that an LLC member is a limited partner and not subject to SE tax unless he has personal liability for debts against partnership, has authority to contract on partnershps behalf, or participates in partnerships trade or business in excess of 500 hours for the year. Additionally, if business involves performance of services any member who provides such services is considered a general partner for SE purposes. I believe your question is justified. If they aren't paying any payroll or issuing any 1099's, I would suspect at least one of the members is acting in a manner similar to a GP for SE purposes and should pay SE tax. | |
| 5 August 2009 | |
| G/Ps salary is generally in the form of a guaranteed payment for services rendered. I don't think you can issue them a W-2. Were guaranteed payments possibly booked as distributions to LLC members in this case? | |
Harry Boscoe (talk|edits) said: | 5 August 2009 |
| "No, someone has to be the General Partner."
Please tell me it ain't so. "The G/P in most cases would be drawing a W-2 salary" Please tell me it ain't so. If this is an LLC treated as a partnership for income tax purposes, the several issues involved in the Self-Employment status of the members of the LLC are such a mess that *even Congress* won't get its hands dirty anymore. We do not have answers to your questions, Pink Pearl. Please don't go with Jctmstx's startingly bold assertions without checking them out on your ouija board... | |
Pink Pearl (talk|edits) said: | 5 August 2009 |
| No payroll at all...no guaranteed payments to anyone. I guess prior CPA's are being aggressive in regards to not including Self employment earnings to majority partner. But...can an LLC exist without at least one General Partner? Maybe I'm gonna pass on this return cuz I sure don't want to be picking up the bar of Ivory from the floor if IRS takes a peek at this return. | |
| 5 August 2009 | |
| I restate a Limited partnership is a form of partnership similar to a general partnership, except that is addition to one or more G/P's there are one or more L/P's. It is a parnership in which one partner is required to be a G/P. "Sullivan,arthur, Steven M Shepprin (2003) Economics: Principles in Action; Pearson Prentice Hall pp.190. | |
| 5 August 2009 | |
| Furthermore, it is a "pass-through entity" like a S Corp. Almost, all of my clients draw a salary. Be they, lawyers, doctors, etc. | |
| 5 August 2009 | |
| This is not an LP, this is an LLC. It's an entirely different legal entity. LLCs do not have General Partners with personal exposure.
It's very possible for an LLC to not have any members that owe SE tax. But in the example presented, I would advised to at least dig a little deeper to make sure treatment is correct under 1.1402(a)-2. How is the income being generated? How much time do the members devote to the business. If the members aren't devoting time to the business, aren't involved in business decisions, and there is no payroll or mgt fees, where are the profits coming from? | |
| 5 August 2009 | |
| I understand your argument regarding paying wages to an LLC member, but in my experience, it's not permissible. An S Corporation is a different story. Don't ask me why there is a difference, but there is. | |
| 5 August 2009 | |
| I stand corrected I miss read the orginal post as comparing Limited partnerships to general partnerships. Bertkdo is correct. | |
Pink Pearl (talk|edits) said: | 5 August 2009 |
| Client has checked the No box regarding material participation. They file Sch F to reflect corn and grain sales but have no payroll or management fees on return. It seems that someone in the partnership must be involved in at least business decisions to generate this much income. I will talk to LLC member when he returns next week for further clarification..thanks for input. | |
| 5 August 2009 | |
| Pearl, my understanding is that there is no "right" answer to your question, just perhaps a better or worse answer, and I think you are on the right track.
Remember, from a legal standpoint, ALL members of an LLC are limited partners. That's the whole reason they were dreamed up to begin with. It's just when you start stirring in the tax concerns that things get complicated. | |
Pink Pearl (talk|edits) said: | 5 August 2009 |
| Well...if I decide to do his Sub-S return (he is an attorney by the way) and flip his salary (48K) and S/H distribution (240K) around then the question of SE income from the LLC pretty well goes away. | |
Harry Boscoe (talk|edits) said: | 5 August 2009 |
| All my lawyer clients always had *losses* from their farms... LOL, too!
What's the name of the case out in the midwest where the pig farmers were allowed to claim losses under Section 469 because .. because .... Oh, I guess I *do* have to read the case again, I can't even remember what it said. Who's got that name? | |
Death&Taxes (talk|edits) said: | 5 August 2009 |
| Garnett, my friend | |
| 5 August 2009 | |
| When did economics, finance, and accounting textbooks ever become 'authority' that the IRS would find persuasive? I think they would rank somewhere below instructions to forms and verbal answers given on the IRS telephone help line. | |
| 5 August 2009 | |
| Pink Pearl, check the proposed regs. A member is not a limited partner if he had the authority to sign contracts on behalf of the LLC or worked more than 500 hours in the business. Sure sounds like they are subject to SE tax. | |
| 6 August 2009 | |
| On the other hand, the proposed regs have remained proposed for 15 years. Congress, in 1997 prohibited the IRS from issuing or making effective final regulations with respect to the definition of a limited partner under §1402(a)(13) before July 1, 1998; and the IRS has not taken up the effort since.
Although not directly connected to the SE issue, Garnett and Thompson have further muddied the situation. The prior CPA might have it right; however in a prior thread a Dr H said, "This falls under the 'pigs get fat and hogs get slaughtered' maxim of tax planning". Probably an issue that should be discussed with each of the 3 members before completing the tax return. | |
RoyDaleOne (talk|edits) said: | 6 August 2009 |
| Sec. 1.1402(c)-1 | |
RoyDaleOne (talk|edits) said: | 6 August 2009 |
| http://www.nysscpa.org/cpajournal/2006/606/essentials/p32.htm | |
| 6 August 2009 | |
| Reading the committee reports for 1402(a)(13), it appears that the intent behind the limited partner exclusion was to prevent passive investors who have never worked from drawing Social Security benefits. | |
RoyDaleOne (talk|edits) said: | 6 August 2009 |
| http://www.strasburger.com/calendar/news/business/self-employment_tax_considerations_in_choice_of_entity.htm | |
| 10 August 2009 | |
| LLC's don't have partners, they have members. So, no LLC can have a general partner. | |
| 10 August 2009 | |
| Yes, but an LLC can have a member that is not a limited partner. Only limited partners are exempt from SE tax. | |
RoyDaleOne (talk|edits) said: | 10 August 2009 |
| Reading the two new court cases, I am wondering if an LLC can have a limited partner. | |
| 10 August 2009 | |
| Since an LLC by definition limits the financial liability of partners,there is no further need to designate some partners as Limited and others as General post LLC creation. Suit yourself, though, it really doesn't matter. | |
Harry Boscoe (talk|edits) said: | 10 August 2009 |
| "...there is no further need to designate some partners as Limited and others as General...it really doesn't matter." writes TaxMaster.
TaxMaster should read IRC Section 469 and the Garnett case, mentioned above, I think. [Cite: Garnett, 132 T.C. No. 19] | |
| 10 August 2009 | |
| But does not the initial 1065 (partnership) return indicate who is a general or limited partner? I hate LLC's, but if they file as a partnership and one is deemed to be a general partner, does this not refer back to a limited partnership with only one general partner? If ALL partners are limited, is this not a limited liability partnership?
LLC's were the work of the devil if you ask me :) | |
