Treasury issued regulations in 2016 that addressed single-member LLC's, that are disregarded, that owned an interest in a partnership. The regulations provide that a disregarded SMLLC (one in which no check the box election has been made), is ignored for purposes of determining whether the disregarded entity is able to receive wages and treated as an employee; no wages / guaranteed payments only.
The preamble to these regulations stated that commentators wanted to know the impact on tiered partnerships and whether an individual owning an interest in a tiered structure can be treated as an employee at the upper tier level. Treasury asked for comments related to tiered structures, but have not provided any additional guidance in this area. As such, it is not worth taking the risk. Pay out guaranteed payments.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
