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A personal guaranty does not make you liable for the SE tax. There are only a few very straight forward items which do. An LLC is an entity which is a hybrid similar to a corporation. Here is a list of the items which can make you obligated for SE tax as taken from the IRS web site. Following that is a link to the web page about this where you can see answers to related matters.
Generally, you are self-employed if any of the following apply to you.
That part I already know. Thanks. What about the proposed regs from 1997? How do they apply in determing whether a member is a limited or managing member? IRS auditor is claiming that the sigining authority for the loan and guaranty make the members laible for SE tax.
Two of these members do not participate in the day to day management of the business. But they have the ability to enter into contracts and have guaranteed a loan. However, the loan proceeds did not go to the business and were used by the other partners to pay off a retiring partner. The loan is in the LLC name. Does it matter where the loan proceeds go when they can enter into contracts for the business?
Thank you. One last part.....if the LLC agreement would be for a manager-managed LLC...with two classes of ownership...would this maybe make these two partners managing members and limited members? If so...could the SE tax be applied to only a portion of their LLC income? How would that be allocated?