Self-employment tax and the LLC member: a uniform approach.

• Jurisdiction: United States
• Author: Pierson, Steven G.
• Date: 01 May 1997

On Jan. 13, 1997, amendments were proposed to the regulations on whether a limited liability company (LLC) member is subject to self-employment (SE) tax under Sec. 1402. The proposed regulations provide a uniform test for determining a member's status for SE tax purposes, replacing the former regulations, which relied on state law.

Under Regs. Sec. 1.1402(a)--18 (proposed in 1994), there was a two-part test to determine whether an LLC member was treated as a limited or general partner for SE tax purposes. This designation is important; under Sec. 1402(a)(13), the distributive share of any item of income or loss of a limited partner generally is not subject to SE tax. (See Tax Clinic, "Self-Employment Tax for LLC Members," TTA, May 1995.)

A member was treated as a limited partner if (1) the member...