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Subject Matter: |
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Self-Employment Tax on Distributive Share from LLC |
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Brief Description of Issue (include examples if available): |
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Under present law, it is unclear to what extent the income of members of a limited liability company is subject to the self-employment tax. In 1997, proposed regulations were issued that, if certain conditions were satisfied, would treat individual members of a limited liability company as a limited partner and, therefore, exclude such individual's distributive share of earnings from the limited liability company from the application of the self-employment tax. Section 935 of the Tax Relief Act of 1997, prohibited those proposed regulations from taking effect before July 1, 1998. Although that moratorium has since expired, the regulations have never been finalized and significant uncertainty remains for affected taxpayers. |
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Proposed Legislative Change: |
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In light of the uncertainty as to when the self-employment tax applies with respect to income allocated by a limited liability company to an individual member, Congress should amend Section 1402(a)(13) to clarify the circumstances under which an individual member of a limited liability company will be treated as a limited partner. |
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Benefits/Impact of Legislative Change (include the number of taxpayers impacted if known):
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Enhance certainty. |
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Internal Revenue Code Cites. |
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Code section 1402(a)(13); Prop. Treas. Reg. Section 1.1402(a)-2(h). |