Some additional guidance has emerged on the self-employment tax status of member-managers of an PLLC in the case of Castigliola, et al v. Commissioner, TC Memo 2017‑62.
Like the members in the case of Renkemeyer, Campbell, & Weaver, LLP v. Commissioner, 136 TC 137 (2011) the individual members in this case were attorneys who practiced in a law firm. However, unlike the attorneys in Renkemeyer, these attorneys did not claim that all income from the law firm was not subject to self-employment tax.
Rather, the attorneys had consulted with an experienced CPA well versed in tax matters and agreed to pay out guaranteed payments to each member that was equivalent to a reasonable salary for an attorney of that individual’s experience level in their locality. The guaranteed payments were reported as self-employment income and self-employment tax was paid on those amounts. To the extent the law firm had income in excess of the guaranteed payments, those amounts flowing out on the K-1s were treated as income not subject to self-employment tax.
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