chad[at]pengar.com (Chad Leigh) wrote:
- quote -

Just because Turbo Tax has a question relating to SE tax
that can be answered "No" doesn't mean doing so is correct.
You may actually have to pay SE tax but you're not doing it
because you checked the box incorrectly. It's unusual for a
general partner's income not to be considered SE income.
It's possible, but generally not likely. I'd check with a
professional to be sure you're doing it correctly. There's
not enough information from what you've said to determine
whether it's right or wrong.

PHG

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Chad Leigh wrote:

- quote -

Umm, that only proves that TurboTax will prepare the return
that way--not that preparing it that way is correct. The
reality is that the issue of liability for self-employment
tax on the pass-through from an LLC is, at best, unclear.
But my own take is that the most likely way the Tax Court
would rule is that an LLC member is generally treated like a
general partner--and subject to SE tax on income that is not
specifically excluded from SE treatment.

An LLC member probably could hide behind the IRS proposed
regulations that might exempt *some* situations that a pure
reading of the IRC wouldn't lead you to exclude, though
officially those regulations were blocked by the Congress
initially from being put into final form and, since that
prohibition expired, the IRS hasn't done anything with them.
Further "out on a limb" would be a position based on a
prior set of proposed regulations that have been withdrawn.

I'm not alone in coming to that conclusion. Bill and
Burgess Raby came to the same conclusion in a recent article
in Tax Notes Today.

But, in any event, I know of no one who has done the work of
running this one down to the law who would believe there is
a simple set of "yes/no" questions that would resolve this
issue to an answer that is clearly the "correct" one.
Reality is that TurboTax has to do *something* on the
issue--but that doesn't mean that what they do is going to
ultimately be judged to be the correct answer should the
position be challenged by the IRS.

TurboTax is a tool--but the end product is only as good as
the skill of the person using the tool. And this is a case
where, frankly, if someone has not been trained in technical
tax research or done a *lot* of work to learn about proper
tax/legal research techniques, it's likely not possible to
be skilled enough to make use of the tool.

--
Ed Zollars, CPA
Phoenix, Arizona

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cdmalkemus[at]charter.net (Cher) wrote:

- quote -

My LLC is taxed as a partnership and I don't have to pay SE
tax. I use Intuit Turbo Tax for Business, the version that
handles 1120, 1120S, and 1065 forms, and it asks a question
which turns on the SE tax or not. I don't remember the
question off hand but it is in there and a lead for you to
check out.

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In order to avoid SE tax, is it a good idea to have the LLC
taxed as an S corp instead of a partnership? It seems
almost all LLC's are taxed as P'ships, but what about all
that SE tax? How can that be good? Thanks.

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