which of the following statements is correct according to the Tax Court? A) a general partner...

which of the following statements is correct according to the Tax Court?

A) a general partner is not subject to self-employment tax.

B) a member of an LLC is not subject to self-employment tax.

C) a member of an LLC is not the same as a limited partner in terms of self-employment.

D) a member of an LLC may elect to be treated the same as a limited partner in terms of self-employment income.

Solutions

Expert Solution

A). Self employment tax is basically a tax chargeable on the net earnings of an individual from self employment in a year. Any distributive income from a firm to its partner shall come within the ambit of self employment income. and hence general partner will be subject to self-employment tax.

Hence the statement is INCORRECT.

B.) A member of an LLC will also be having self-employment income as a distributive income other than the payments which are guaranteed. Therefore, chargeable to tax.

Hence the statement is INCORRECT.

C.) A member of an LLC will also be having self-employment income as a distributive income. Therefore, chargeable to tax. the only exception to this is the limited partners who just invests and are not involved in the business itself. the passive investor in LLC who is a limited member will be out of the purview of employment tax. therefore, limited partner and member of an LLC are not treated equally for employment tax purpose.

Hence, the statement is CORRECT.

D.)A member of an LLC cant elect itself to be treated as limited partner for going out of the tax net of employment tax. since the distributive income is chargeable to tax, the same is mandatory also.

Hence, the statement is INCORRECT

jeff jeffy answered 8 months ago

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