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LLC tax loss pass through

I am preparing K-1s for investor members of an LLC. The Company has losses for the year ended Dec 31, 2014, which are allocated proportionally to member interests. What restrictions, if any, are there on the ability of members to offset their allocated loss against other income. Is the loss allowance limited to the amount they have paid in as their equity?


Topic Expert
Randall Hylek
Title: President
Company: RJH Consulting
(President, RJH Consulting) |

No limitation if they materially participate. Passive losses may have limitation

Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

Thanks. Does attendance at management meetings count as material?

vincent Matrisciano
Title: Sr Dir
Company: Colgate Group
LinkedIn Profile
(Sr Dir, Colgate Group) |

Unfortunately attending to the Attending a meeting or meetings would not be enough To make someone active. The starting point to determine how to fill out the the demographic box's on the k-1's woulf be with the innitial llc formation documents and anendments as the managing members may be spelled out there depending on what state you are formed in. Next look to the operating/managment agreement that governs the opperations of the llc if certain membets or classes of members must vote or approve actions of managmeny then you might have a case. Even if the box is checked it is still a partner level determination based on time spent.

To be non-passive, and the IRS will generally try and assume all llc's treated as as partnerships, thus issuing k-1's are passive. they would have to be able to document to the IRS that ghey spend a substantial amouf time involved with the business. In our practice we have had to set up ownership structuers for our clients to maximize their active participation in mutipal entities.


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