TaxMonkey
Level 8

Income bifurcation in an LLC is an aggressive tax strategy which may have some merits, but I would approach it carefully.  Mechanically you would set up separate K-1s for the limited partner interests and for the general partner interests.  As a limited partner you would not be subject to SE tax, as a general partner you would.

Here is an IRS PLR which is on point - they concluded in this case that the partner did not have a limited partner component ans were fully subject to SE tax on all income.  However, they reference all the major case law on the subject:

https://www.irs.gov/pub/irs-wd/201640014.pdf

Here is another article that suggests the mechanisms and tests based on the 1997 proposed regulations - never finalized - which describes when an LLC interest could be treated as a limited partner interest.


https://www.bauer.uh.edu/jmeade/articles/CPA%20Journal%20June_2006.pdf

View solution in original post

0 Cheers