I'm probably missing some information, or my brain is fried.
Client is retired, but has been offered a position with an LLC. He will own 5% of it and receive income. To negotiate the right amount, he wants to know if he will be a W-2 employee and pay only his half of FICA, or must he receive guaranteed payments and have to pay both halves? Gary
-- The above address is fake. If you want to contact me directly, please send an e-mail to: gary at gdgoodman dot com.
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He's an employee if the LLC elects to be taxed as a corporation. Otherwise, he's a partner for tax purposes and gets a guaranteed payment. Katie in San Diego
Katie, that's what I thought, but the client wants us to prove it. I think part of the problem is that he doesn't understand the rules of an LLC. Thanks, Gary
-- The above address is fake. If you want to contact me directly, please send an e-mail to: gary at gdgoodman dot com.
The IRC doesn't recognize LLC's, so they have to be treated as something that is recognized. There's probably a letter ruling for your state allowing the creation of LLC's - perhaps it talks about this point. Stu
Take a look at the entity classification regulations (commonly called the "check the box" regulations), reg sections 301.7701-1, 301.7701-2, and 301.7701-3. Under the regulations, any unincorporated association that has two or more members is classified as a partnership by default unless an election is made to treat the association as a corporation. It might also be helpful to show him Form 8832 and the instructions to that form.
--Chris
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