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Can one person be a limited member and general member of the same LLC?

Forum|Forum|7 years ago
June 6, 2019
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This article seems to suggest that a single person could be a both a limited member and general member of the same LLC (see section heading "What if a person is a General Partner and a Limited Partner?"): http://www.cohnekinghorn.com/LLCs-and-Self-Employment-Tax-Update-2012

Is this the case, and if so, how would this be represented in Turbo Tax Business?

TurboTax Business Windows

Best answer by magjor

It appears that, according to proposed IRS regulations, a partner who holds both kinds of interests in an LLC must be considered a general partner, and not a limited partner:

"However, if an individual holds two types of interests in the entity classified as a partnership, and one of the interests is not treated as a limited partnership interest (e.g., a state-law general partnership interest), the individual would not be treated as holding a limited partnership interest (Prop. Regs. Sec. 1.469-5(e)(3)(ii))." - See more at: http://www.thetaxadviser.com/issues/2012/jun/clinic-story-04.html#sthash.q2G8Pvqt.dpuf

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magjorAuthorAnswer

It appears that, according to proposed IRS regulations, a partner who holds both kinds of interests in an LLC must be considered a general partner, and not a limited partner:

"However, if an individual holds two types of interests in the entity classified as a partnership, and one of the interests is not treated as a limited partnership interest (e.g., a state-law general partnership interest), the individual would not be treated as holding a limited partnership interest (Prop. Regs. Sec. 1.469-5(e)(3)(ii))." - See more at: http://www.thetaxadviser.com/issues/2012/jun/clinic-story-04.html#sthash.q2G8Pvqt.dpuf

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e-John

Employee

I would say that it is possible, but I have never seen it. Are you filing a 1065 return? How many members of the LLC are there? What is the nature of your inquiry -- what are you hoping to achieve?

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magjorAuthor

Well, it's a weird situation where we have an LLC with 3 members, and each of us have capital investment, but none of us work more than 500 hours for it. So by default, it seems we are all limited, "investment"-level partners in this LLC. But of course someone has to be designated as the manager of the LLC, so one of us is the manager... the manager is automatically a "general partner" I believe, but it seems they should also be allowed to be a "limited partner" and receive distributions without having to pay SE tax, since they work less than 500 hours for the LLC.

Should the manager member be listed twice in the member section of the LLC in Turbo Tax Business? Once as a general partner (who receives guaranteed payments for service) and once as a limited partner (who receives income distribution for capital investment, which is not subject to SE tax)?