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Thursday, July 23, 2009

Court of Federal Claims Finds LLC and LLP Interests Are Not Limited Partnership

Court of Federal Claims Finds LLC and LLP Interests Are Not Limited Partnership Interests Under Passive Loss Rules (Thompson, FedCl)

A limited liability company (LLC) member's interest in his LLC was not a limited partnership interest for purposes of applying the more stringent test for material participation under the passive activity rules because the IRS lacks the authority to apply that rule to anyone who is not, strictly speaking, a limited partner. Accordingly, material participation of an LLC member is evaluated using the more generous criteria that normally applies to anyone who is not a limited partner. This decision by the Court of Federal Claims follows within days the Tax Court's similar decision against the IRS in P.D. Garnett, 132 TC No. 19, Dec. 57,875 (TAXDAY, 2009/07/01, J.1).

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