The IRS Office of Chief Counsel (OCC) has determined in Chief Counsel Advice 201436049 that active members of an investment management company formed as a limited liability company (LLC) are not limited partners for the purposes of self-employment tax. This means that their net distributive shares of management fee income are subject to self-employment tax.
The OCC determined that the management company received its income from the investment management services of the members. The income did not result from investments, which Congress sought to exclude from self-employment tax under Internal Revenue Code Section 1402(a)(13). Under these conditions, the OCC viewed that the members did not qualify for the exclusion and they were subject to self-employment tax on their distributive shares of income.
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