The last column1 discussed limited partnership interests and limited liability company membership interests (LLCs) in conjunction with the operations of the passive loss rules (PLR) and whether, based upon the statutory provisions2 and regulatory provisions,3 there is a difference in treatment for purposes of the PLR. This column will discuss recent litigated cases involving LLCs and the PLR.
LLC Status Under PLR
In Gregg v. United States,4 a member of the LLC was treated as a general partner and, based upon the facts, satisfied the test for material participation in the activities of the partnership so that his ratable share of flow through operating losses were deductible as ordinary losses, not as passive activity losses. The Oregon district court rejected the Internal Revenue Service (IRS) contention that for Section 469 purposes, all members of an LLC are treated as limited partners because the LLC is an entity that gives the investors limited liability under state law and is taxable as a partnership.
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