3. Mayores ventas :
2.6. Barreras y dificultades para la Cadena de Suministros
A. Net Earnings from Self-Employment. Self-employment taxes are payable upon an individual’s “self-employment income.” In 2011, self-employed workers pay 13.3% (10.4% OASDI;11 2.9% Medicare). This amount is scheduled
10IRC § 704(e)(3) expands the scope of these rules to provide that a purchase of a partnership interest from a spouse, ancestor, lineal descendant, or trust that primarily benefits any of these persons is considered a gift.
11The "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" reduced the Old-Age, Survivors, and Disability Insurance (OASDI) component of
self-employment taxes from 12.4% to 10.4% for 2011 (and from 6.2% to 4.2% for the employee’s share of OASDI).
to increase back up to 15.3% in 2012. The maximum net earnings to which the OASDI component applies is $106,800 in 2011. “Self-employment” income includes “net earnings from self employment,” which is defined at IRC § 1402(a) to include:
1. Gross income from a trade or business, less allowable deductions attributable to such trade or business; plus
2. An individual’s distributive share (whether or not received) of the net income or loss from any trade or business carried on by a partnership of which the individual is a member.
3. Net earnings from self-employment consist of the aggregate of the net earnings from all such trades or businesses or partnerships. Treas. Reg. § 1.1402(a)(-2(c). For example, a loss distributed from a partnership may be used to offset any income earned in another trade or business.
4. If your net earnings from self employment income are $400 or less, you are not required to pay self-employment taxes. IRC § 1402(b)(2).
B. Distributive Share of Partnership Income. IRC § 1402(a) includes an individual’s distributive share (whether or not received) of the net income or loss from any trade or business carried on by a partnership of which the individual is a member. There is no analysis of whether or not the partner is actively engaged in the partnership’s business. Treas. Reg. § 1.1402(a)-2(g); Estate of Ellsasser v. Commissioner, 61 T.C. 241 (1973).
1. In response to the Ellsasser decision, which required the inclusion of a limited partner’s distributive share of profits in “net earnings from self employment” even though the limited partner was not engaged in
management, Congress added IRC § 1402(a)(13) in 1977. This provision excludes the distributive share of the income of a limited partner in
determining net earnings from self employment to the extent that such amounts are not received as guaranteed payments for services actually performed by the limited partner for the partnership.
a. IRC § 1402(a)(13) also excludes a limited partner’s share of partnership losses to be applied to reduce net earnings from self employment. Hough v. Commissioner, 162 F.3d 1151 (3rd Cir. 1998).
2. The statute does not define “limited partner.” Recently, lawyers who had formed a limited liability partnership for their law practice asserted that as partners of the limited liability partnership, they were exempt as “limited partners” under IRC § 1402(a)(13) from self-employment taxes on their distributive share of the firm’s income. The Tax Court rejected their argument. Renkemeyer, Campbell & Weaver, LLP v. Comm'r, 136 T.C. 137 (2011).
a. Although partners in a limited liability partnership are protected from liability for partnership obligations (other than for the partner’s own actionable conduct or for the actionable conduct of a person under her control or supervision, Mont. Code Ann. § 35-10-307(3)), the partnership nonetheless remains a general partnership, and each partner of a limited liability partnership has the right to participate in the partnership’s management. Mont. Code Ann. § 35-10-401(6).
b. The Tax Court relied on legislative history in coming to its conclusion, and noted that "the intent of section 1402(a)(13) was to ensure that individuals who merely invested in a partnership and who were not actively participating in the partnership's business operations (which was the archetype of limited partners at the time) would not receive credits toward Social Security coverage."
3. Retirement payments made to a retired partner are not included in self employment income, if made in accordance with a written plan that satisfies the requirements of Treas. Reg. § 1.1402(a)-17(b). Generally, the
payments must be payable to all retiring partners, must be periodic, and must continue until death.
C. Limited Liability Companies. Currently, there is great uncertainty as to the status of the distributive share of members of a limited liability company that is taxed as a partnership. In early letter rulings, the IRS ruled that members of a
limited liability company were to be treated as general partners. See, for example, PLR 9452024 (involving the conversion of a general partnership consisting of physicians into a limited liability company) and PLR 9432018 (involving
conversion of a real property general partnership into a limited liability company).
1. 1997 Proposed Regulations. In 1997, the IRS proposed regulations establishing rules governing how the distributive share of partners in partnerships and members of limited liability companies would be treated for purposes of self-employment taxes.
a. In the Taxpayer Relief Act of 1997, Congress imposed a moratorium on regulations regarding employment taxes of limited partners. The moratorium provided that any regulations relating to the definition of a limited partner for self-employment tax purposes could not be issued or effective before July 1, 1998. No regulations have been issued to date.
b. Although the Proposed Regulations have never been adopted, practitioners have relied upon the Proposed Regulations as
guidelines in advising clients. Under Treas. Reg. §
1.6662-4(d)(3)(iii), proposed regulations are "substantial authority" for purposes of avoiding the penalty on a substantial understatement of income tax.
2. General Rule. Under section 1.1402(a)-2(h)(2) of the 1997 Proposed Regulations, an individual who is a partner in a partnership or a member in a limited liability company is subject to the statutory exclusion for limited partners under section 1402(a)(13) unless the individual meets one of the following tests:
a. The individual has personal liability for debts or claims against the partnership;
partnership;12 or
c. The individual participates in the partnership’s trade or business for more than 500 hours during the partnership’s tax year. For professional services entities, such as professional limited liability companies formed to provide legal, engineering or accounting services,
3. Professional Services. If substantially all of the activities of a
partnership involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, or consulting, no member who provides more than some de minimis amount of services to the partnership or limited liability company can qualify for treatment as a
limited partner for self-employment tax purposes.
4. Bifurcation. The 1997 Proposed Regulations allowed a partner (or LLC member) who failed the limited partner test, and who owned more than one type of interest in the partnership or LLC (such as a general partnership interest and a limited partnership interest in a limited
partnership, or a managing interest and a non-managing interest in an LLC) to bifurcate those interests if certain conditions were met. To bifurcate, at least one partner (member) other than the failing partner (member) must hold units representing a 20% investment ownership interest, and this partner (member) cannot hold a managing interest or participate in the management of the partnership (LLC). As such, this technique is not available to single-member or member-managed LLCs.
Example: Mary and Paul own the following interests in Mom & Pop LLC:
12Unless modified by the terms of the agreement between the partners or members of a limited liability company, the persons who have authority to enter contracts on behalf of the entity are: a general partner of a limited partnership (MCA § 35-12-806), any member of a member-managed LLC (MCA § 35-8-301), and the managing member(s) of a manager-managed LLC (MCA § 35-8-301).
Mary: 1% interest as a managing member 69% interest as a non-managing member Paul: 30% interest as a non-managing member
Under the operating agreement of the LLC, Mary, as managing member, is to receive a guaranteed payment of $30,000 for her services. At the end of the first year, the LLC has net profits of $100,000, after deducting Mary’s guaranteed payment. Mary would report $31,000 as self-employment income ($30,000 guaranteed payment plus 1% of $100,000 for her 1% managing-member interest). The remaining distributive incomes of $69,000 to Mary as a non-managing member and $30,000 to Paul would not be subject to self-employment income.
5. For a discussion of the Proposed Regulations and subsequent proposals generated by the American Bar Association and American Institute of Certified Public Accountants, see Generally David Culpepper et al, Self-Employment Taxes and Pass-through Entities: Where are we Now?, 105 Tax notes 211 (2005).
D. S Corporation Income. As a general rule, small business corporations that elect S corporation status pursuant to IRC § 1361 do not pay income taxes on their income. Instead, corporate income and losses are passed through to its
shareholders, who report the income and losses on their individual returns. Net earnings from self employment do not include an S corporation’s shareholder’s share of S corporation income and losses. Rev. Rul. 59-221, 1959-1 C.B. 225 (amounts reportable by an S corporation shareholder pursuant to the Subchapter S pass-through rules “are not derived from a trade or business carried on by such shareholder.”)
1. IRS Recharacterization. The IRS has assessed employment taxes when S corporation shareholders have paid themselves unreasonably low salaries. Mr. Spicer, an accountant, and his wife were the sole shareholders of Spicer Accounting, Inc., an S corporation. The corporation never paid Mr. Spicer, the sole accountant who worked for the firm, any wages. Mr. Spicer
characterized any amounts paid to him by his S corporation as dividends. Mr. Spicer testified in the district court that he purposefully received his
payments in the form of dividends, rather than as wages, to avoid liability for FICA or SECA taxes. The Ninth Circuit confirmed the district court’s ruling that the IRS properly recharacterized the amounts paid to Mr. Spicer as wages subject to FICA taxes. Spicer Accounting Inc. v. United States, 918 F.2d 90 (9th Cir. 1990). See also Radtke S.C. v. United States, 712 F. Supp. 143 (E.D. Wis. 1989), aff'd per curiam 895 F.2d 1196 (7th Cir. 1990); Dunn & Clark P.A. v. Commissioner, 853 F. Supp. 365, (D. Idaho 1994).
2. Warning. In a 2004 information release, the IRS identified as a “questionable employment tax practice” the improper treatment by S corporations of officer compensation as a corporate distribution instead of wages or salary. IRS Information Release IR-2004- 47, Doc 2004-7495.