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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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As an LLC filing a 1065 does there have to be a general

Customer Question

As an LLC filing a 1065 does there have to be a general partner/llc member manger or can all the members be limited partners or other llc members? Do limited partners pay self employment taxes on the income earned by the LLC or just member mangers?
Submitted: 9 months ago.
Category: Tax
Expert:  Lev replied 9 months ago.

Withing a general partnership - all partners are general partners.

If that is a limited partnership - at least ONE partner must be a general partner and other may be limited partners.

Only for active partners who actively participated in the partnership business activity - the income is subject to self-employment tax,

If the partner is passive and NOT actively participated - income is passive income - and not subject to self-employment tax.

Customer: replied 9 months ago.
if not partner is actively involved no one would pay self employment tax? Assuming the partners hire a manager to oversea the day to day operations?
Expert:  Lev replied 9 months ago.

That is correct if that is passive activity - income is not subject to self-employment tax.

See here

https://www.law.cornell.edu/uscode/text/26/469

(c) Passive activity defined

For purposes of this section—

(1) In generalThe term “passive activity” means any activity—(A)

which involves the conduct of any trade or business, and

(B) in which the taxpayer does not materially participate.

...

(h) Material participation definedFor purposes of this section—

(1) In general

A taxpayer shall be treated as materially participating in an activity only if the taxpayer is involved in the operations of the activity on a basis which is—

(A) regular,

(B) continuous, and

(C) substantial.

(2) Interests in limited partnerships

Except as provided in regulations, no interest in a limited partnership as a limited partner shall be treated as an interest with respect to which a taxpayer materially participates.

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