Meredith is a passive 30% member of the MNO LLC.She is not a managing member and she does not participate in any activities of the LLC.Her interest is more in the nature of an investment.In the current year,Meredith's distributive share of income from the LLC was $50,000.In addition,she received a guaranteed payment of $40,000 for the use of her capital.Assume that her income from other sources exceeds $500,000.How much of Meredith's LLC income will be subject to the self-employment (SE) tax (under the Proposed Regulations) and the net investment income (NII) tax? (Disregard the additional Medicare tax.)

Question

​Meredith is a passive 30% member of the MNO LLC.She is not a managing member and she does not participate in any activities of the LLC.Her interest is more in the nature of an investment.In the current year,Meredith's distributive share of income from the LLC was $50,000.In addition,she received a guaranteed payment of $40,000 for the use of her capital.Assume that her income from other sources exceeds $500,000.How much of Meredith's LLC income will be subject to the self-employment (SE) tax (under the Proposed Regulations) and the net investment income (NII) tax? (Disregard the additional Medicare tax.)

Quizplus · Accepted Answer

As a passive member of the LLC, Meredith's distributive share of $50,000 is not subject to self-employment tax. However, her guaranteed payment of $40,000 is subject to the net investment income tax because it is considered a payment for the use of her capital. Therefore, Meredith's total NII tax would be $90,000 ($50,000 + $40,000).

​Meredith Is a Passive 30% Member of the MNO LLC

Meredith Is a Passive 30% Member of the MNO LLC