Tax Law Blog
Business owners who operate through partnerships or LLCs taxed as partnerships should take note: a recent Fifth Circuit Court of Appeals decision could significantly reduce the amount of self-employment tax certain partners owe.
Under long-standing tax law, partners generally pay self-employment (SECA) tax—currently 15.3%—on their share of business income. However, there is an important exception: the distributive share of income earned by a “limited partner” is typically not subject to SECA tax (although payments for services, called “guaranteed ...
This article discusses the application of Sections 280G and 4999 of the Internal Revenue Code and related treasury regulations (“IRC” or “Code”)[1], best practices, and alternative approaches to structuring and approving parachute payments in the context of a deferred compensation plan (“Plan”) for a privately held domestic company (“Company”)[2]. Assume a Plan such as a synthetic equity plan involving phantom stock to be paid in cash upon IRC 409A compliant payment events, substantially simplifying valuation issues noted below.
I. BACKGROUND
Section 280G ...
