LLC limited partner, guaranteed payments, self-employment income and medical insurance premiums paid

[jhbvtacpa]

Happy TY2023 to all!!

Client's K-1 shows as follows:

Limited partner

Self-employment earnings in 14A and total guaranteed payments in 4C are equal amounts

Medical insurance premiums paid shown in Box 13, code M

Are these payments considered a self-employed insurance payment (Schedule 1, line 17) or a medical expense shown as an itemized deduction? 

[itonewbie]

Can be either, depending on which one works out better.

[Accountant-Man]

Limited partners generally do not work, so they shouldn't have SE earnings, guaranteed payments nor health insurance.

[sjrcpa]

But in this case, they do. Probably more common with LLCs.

[itonewbie]

@Accountant-Man There are enough limited partners who work and pay only SECA on their guaranteed payment portion that the IRS has put this in their LB&I campaigns to pursue these "limited partners", as defined by state law, on the basis that the carve-out in §1402(a)(13) may not apply to them under certain circumstances.  Apparently, the Big Brother has been quite successful in courts too in pursuing these limited partners in recent years.

https://www.irs.gov/businesses/corporations/lbi-active-campaigns

[jhbvtacpa]

In my client's case, the amount of guaranteed payments and self-employment income are equal amounts of almost $200k. The medical insurance was about $25k.

Thanks for the guidance.

[Accountant-Man]

There's a difference between non-managing members in LLCs(Limited Partners?) versus limited partners in a limited partnership.

There was a case, prior to 2014, I believe lawyers in St. Louis, who tried to have huge net profits and small guaranteed pmts, thereby paying SE tax on only small GPmts, and not on Line 1 profits.

IRS ruled against them and they owed big time SE tax on Line 1, too. Renkemeyer, Campbell and Weaver, LLP, 136 T.C. 137, 2011.

[TaxGuyBill]

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@Accountant-Man wrote:

There's a difference between non-managing members in LLCs(Limited Partners?) versus limited partners in a limited partnership.

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I REALLY wish the IRS would separate "Limited Partner" and "Other LLC Member" into two different boxes on the K-1.

[Accountant-Man]

How much is Line 1 income?

[jhbvtacpa]

Nothing on Box 1