How to maximize deductions for LLC and LLP losses
Abstract: Limited liability companies (LLCs) and limited liability partnerships (LLPs) are popular business structures because they combine the tax advantages and flexibility of a partnership with the liability protection of a corporation. But until recently, the IRS treated owners as limited partners for purposes of the passive activity loss (PAL) rules. But federal courts have ruled that LLC and LLP owners should be treated as general partners, making it easier for them to deduct losses. However, the owners must establish that they “materially participated” in the business. This article lists seven tests, any one of which can establish material participation.