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Old 01-14-2015, 09:11 PM
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The IRS has stated that an LLC member may not be considered a qualifying limited partner and could be subject to S/E Tax on his share of partnership income where the LLC receives fees for services!

IRS has concluded in a Chief Counsel Advice, partners that are limited partners for virtually all legal purposes are not limited partners for purposes of the “limited partner” exclusion provided under the self-employment tax provisions of the Internal Revenue Code, where the partnership receives fees for services rendered (a “service partnership”).

Under existing law, a general partner’s share of service partnership’s income is subject to the Self Employment Tax, but a limited partner’s share is not. Any partner’s amount of a “guaranteed payment” for services rendered to a partnership is subject to the Self Employment Tax (SET).

The legislative history for the exception of a limited partner’s distributive share of a partnership’s income comments that such limited partner’s income should not qualify for the exception where the limited partnership received fees for services from third parties based upon services performed by the limited partners to and for the partnership.

This IRS ruling via its Counsel "has far-reaching implications for all investment management partnerships, as well as service partnerships in other industries."

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