Self-employment Tax Snafoos

“If you are relying on your tiered entities to shelter you from SECA, you may be in for some sticker shock.” ~Mitzi Sullivan, CPA

limited partner self-employment tax
Limited partner with self-employed income?

Since 1977, limited partners have reported distributive income as passive investment income not subject to self-employment tax.  But the times they are a changin’.  With the increased popularity of LLPs and LLCs, the IRS is looking more closely at the facts and circumstances, and less at the legal structures, of taxpayer and entity relationships.

There have been rumblings of clarification of the tax treatment of limited partner and LLC member income for SECA purposes, but Congress has made little progress.  The IRS continues to decide the treatment of distributive income on a case-by-case basis, with no concrete guidance.   The courts have consistently upheld that a passive activity under IRC Section 469 is not necessarily a passive activity under IRC Section 1402(a)(13).

If you are relying on your tiered entities to shelter you from SECA, you may be in for some sticker shock.  My advice?  Don’t rely on your K-1 to determine whether or not your income is subject to self-employment tax or ACA’s new investment tax .  Discuss your entity relationships with your CPA to determine the proper reporting.

See also:

Federal Register / Vol. 62, No. 8 / Monday, January 13, 1997 / Proposed Rules

5 Essentials for Every Nonprofit

“I always advise implementation of these 5 essential practices.”~Mitzi E. Sullivan, CPA

6045OLHDPYAs a nonprofit auditor, I frequently meet with boards of directors that are struggling to properly govern while remaining ministry focused.  I always advise implementation of these 5 essential practices.

  1. Make sure you have the basics covered.  Every nonprofit, regardless of size, should have these basic written policies.  All of these policies should be reviewed and updated annually and effectively communicated to board members and employees.  Click on the links below for some of my favorite resources, samples and templates.
    1. Conflicts of interest
    2. Code of ethics
    3. Document retention
    4. Gift acceptance
    5. Whistleblower protection
  2. Retain a schedule of required board meetings and maintain minutes for each meeting.  Every ministry is required to have at least one board meeting annually.
  3. Annually approve executive compensation and benefits and make sure they meet the criteria for reasonable compensation set forth by the IRS?
  4. Review your 990 in detail with your board of directors.  Your 990 is available for all to see and provides a unique opportunity to show your donors how you are meeting your stewardship responsibility.
  5. Have your financial statements prepared, compiled, reviewed or audited by a CPA, either in-house or by a third party.  With the new SSARS 21, CPAs have more flexibility in providing “prepared” financial statements at a reduced cost.

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.