Can one person be a limited member and general member of the same LLC?

[magjor]

This article seems to suggest that a single person could be a both a limited member and general member of the same LLC (see section heading "What if a person is a General Partner and a Limited Partner?"): http://www.cohnekinghorn.com/LLCs-and-Self-Employment-Tax-Update-2012

Is this the case, and if so, how would this be represented in Turbo Tax Business? 

[magjor · Accepted solution]

It appears that, according to proposed IRS regulations, a partner who holds both kinds of interests in an LLC must be considered a general partner, and not a limited partner: 

"However, if an individual holds two types of interests in the entity classified as a partnership, and one of the interests is not treated as a limited partnership interest (e.g., a state-law general partnership interest), the individual would not be treated as holding a limited partnership interest (Prop. Regs. Sec. 1.469-5(e)(3)(ii))." - See more at: http://www.thetaxadviser.com/issues/2012/jun/clinic-story-04.html#sthash.q2G8Pvqt.dpuf

[e-John]

I would say that it is possible, but I have never seen it.  Are you filing a 1065 return?  How many members of the LLC are there?  What is the nature of your inquiry -- what are you hoping to achieve?

[magjor]

Well, it's a weird situation where we have an LLC with 3 members, and each of us have capital investment, but none of us work more than 500 hours for it. So by default, it seems we are all limited, "investment"-level partners in this LLC. But of course someone has to be designated as the manager of the LLC, so one of us is the manager... the manager is automatically a "general partner" I believe, but it seems they should also be allowed to be a "limited partner" and receive distributions without having to pay SE tax, since they work less than 500 hours for the LLC.

Should the manager member be listed twice in the member section of the LLC in Turbo Tax Business? Once as a general partner (who receives guaranteed payments for service) and once as a limited partner (who receives income distribution for capital investment, which is not subject to SE tax)?

[magjor]

(On our Articles of Organization the managing member IS listed twice: once as "Owner/Member" (like the others) and once as "Manager/Manager." The others are only listed as "Owner/Members" and are NOT designated as managers.

[SweetieJean]

This is more of a legal question than a tax one.

[e-John]

Well, it is a tax law question, to be sure, so I am very comfortable with this situation, I just need to know more of the facts.  
Tell be about the nature of the business:  what is sold, how is it sold, who are your customers, roughly what is your gross income, and what employees do you have that manage the business, etc.  How long have you been in business, what other jobs does the "managing partner" have, etc.  More facts are better than less.

[magjor]

Thanks for the help. With a bit more research online I seem to have found the answer (posted above).