In a decision in late June, 2009, the United States Tax Court1 held that ownership interests in a limited liability company (LLC) or limited liability partnership (LLP) should not be treated as limited partners in a limited partnership.2 About a month later, the U.S. Court of Federal Claims decided a case3 that went a notch beyond the holding in the earlier Tax Court case. That provides major support for the view that the statute which states “. . . [e]xcept as provided in regulations, no interest in a limited partnership as a limited partner shall be treated as an interest with respect to which a taxpayer materially participates”4 does not require members of LLCs and LLPs to be limited in how the material participation test5 can be met.6 That at least expands the opportunities to meet the material participation test to the seven tests that are ordinarily available to taxpayers7 rather than the three tests specified in the temporary regulations for limited partners,8 thus increasing the chances for meeting the required standard of material participation on a regular, continuous and substantial basis.9 As noted below, the decision by the U.S. Court of Federal Claims goes a step further in favoring the taxpayer.



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.