The last column1 discussed the passive loss rules (PLR). In that connection, the material participation2 alternative tests (1988 Regulations) were discussed as ways of satisfying the requirements that enable a taxpayer to use losses from certain activities against positive business income, salary and investment income. This column will apply the material participation rules to multi-member limited liability companies (LLCs)
Multi-Member LLCs
Applying rules to multi-member LLCs, the focus is on the participation of each member, rather than on the LLC. Reg. §1.469-2T(e)(1) provides that the “character (as an item of passive activity gross income or passive activity deduction) of each item of gross income and deduction allocated to a taxpayer from a partnership or S corporation (‘a passthrough entity’) shall be determined in any case in which participation is relevant, by reference to the participation of the taxpayer in the activity (or activities) that generated such item.”
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