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Issue 40103

Pub 541 - Limited liability company

Project Statement: Determine if Publication 541, Partnerships, clearly communicates appropriate guidance to the public.

Goal Statement: The goal of this project is to review and make recommendations to the IRS that will enhance customer service and improve the taxpayer’s experience

TAP RECOMMENDATION

Form 541, page 2
Limited liability company (LLC). An LLC is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301.7701-3. See Form 8832 and section 301.7701-3 of the regulations for more details.

Limited liability company (LLC). An LLC is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts, including any penalties, such as a late filing penalty imposed on the LLC. However, if the LLC is an employer, an LLC member that is considered a responsible person could be liable for penalties imposed on the LLC for underpayment or late payment of withheld income taxes, Social Security and Medicare taxes. See Employer’s Tax Guide (Circular E), Publication 15. An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301.7701-3. See Form 8832 and section 301.7701-3 of the regulations for more details. With the explanation of a Limited Liability Company, the publication fails to distinguish that members are still individually responsibility for employment tax – related penalties assigned to the LLC.

IRS Action:Partially adopted

IRS Initial Response

We reviewed the requested change and after research we determined the suggestion can’t be adopted since there is no technical authority to support the change.

TAP Counter Response

REBUTTAL: The technical authority to support the change is the Employer’s Tax Guide (Circular E), IRS Publication 15 Page 30

IRS Final Response

We will adopt a portion of the suggested text which places a reference to Pub 15 and 3402.
Limited liability company (LLC). An LLC is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. However, if the LLC is an employer, an LLC member may be liable for employer related penalties. See Pub. 15, Employer’s Tax Guide (Circular E) and Pub 3402, Taxation of Limited Liability Companies.

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