Dave5112
Level 1
 
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Just-Lisa-Now-
Level 15
Level 15
Is it wrong to laugh when a client only wants part of their income to be taxed?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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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

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sjrcpa
Level 15
LLCs do not have General and Limited Partners

Ex-AllStar
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TaxMonkey
Level 8
Your statement is short and to the point, but lacks the nuances discussed in the above references as to when an LLC member may be treated as a limited partner under IRC 1402 and the associated proposed treasury regulations.
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sjrcpa
Level 15
OK

Ex-AllStar
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