Hello, how are you doing today?
Great. And you?
Good. It's a lovely day.
Since the LLC limits the liability of the owner, the working interest exception does not apply.
Publication 925 page 5 item 2 under the subheading " Activities that are Not passive Activities" states
You can see the link, HERE
And so it is a passive loss even though the managing member in this smllc is active according to the regs as they can execute contracts etc.
Yes, it would still be passive. The LLC limits liability, and that's the key here.
ok. The activity being the well drilling which they did not materially participate in. That's my understanding as well, passive, but every now and then fog rolls in and you want to make sure you don't miss anything. thank you.
You're welcome. It's a complex area, and that's why it took me a minute to even get with you. I wanted to check a couple of sources.
Yes it is complex. Liability drives folks to the LLCs but then they lose sight of the working interest exception and then they believe, "Its on a sch C"
Just wanted to make sure life had not passed me by.
I understand. The key there is limited liability
If there was an exception for SMLLCs then it should be spelled out
Thanks again. I approve the payment and will be back.
but, if liability is limited then the activity is passive.
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Thanks so much!