LLC interest not presumptively passive — IRS acquiesces
The IRS has acquiesced1 — in result only — to the decision in Thompson2 that a taxpayer’s interest in an LLC is not presumptively to be treated as a limited partnership interest for purposes of the passive loss rules.
The regulations do not address material participation by an LLC member. However, the IRS has directed its auditors to treat LLC members, including managing members, as limited partners.3 The IRS has suffered several defeats on this issue in just the last couple of years.4
Note that this is not a full acquiescence. An acquiescence in result only indicates that the IRS will follow the decision in cases with substantially the same controlling facts, but either disagrees or has concern with some or all of the court’s reasoning.
1 Action on Decision to be published in IRB 2010-14 on April 5, 2010
2 Thompson v. U.S., (Fed. Cl. 2009) 104 AFTR 2d 2009-5381
3 IRS Audit Guidelines on Passive Activity Losses (February 1996)
4 See “Interest in an LLC or LLP is not presumptively passive” in the September 2009 issue of Elder Client Planner