February 2010

Tax Court Allows LLC Member's Losses; Rules Against IRS on Limited Partner Issue

From Journal of Accountancy.

The Tax Court held on Tuesday that an LLC member who materially participated in the management of an LLC is not treated as a limited partner and is therefore not subject to the passive loss limitations under IRC § 469 (Newell, TC Memo 2010-23).

The taxpayer owned one-third of a California LLC that owned and operated a country club, golf course and restaurant. The taxpayer was the managing member of the LLC and actively participated in running the business (under the material participation rules of Temp. Treas. Reg. § 1.469-5T(a)(4)). The taxpayer’s distributive share of the business’s losses amounted to $6,020,519 in the years 2001–2003; the taxpayer deducted those losses on his federal tax returns.

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This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.