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October 30, 1995
In 1982 Congress passed a law providing that the tax treatment of
partnership items would be determined at the partnership level rather
than the partner level. Under this procedure, a tax matters partner is
designated by a partnership to represent the partnership before the
Internal Revenue Service (IRS) in all tax matters for a specific taxable
Under the law, a partnership may only designate a general partner as its
tax matters partner. If no general partner is designated, the tax
matters partner is the general partner having the largest profits
interest in the partnership at the close of the taxable year involved
(largest-profits-interest rule). The law also provides that, if no
general partner is designated and the Commissioner determines that it is
impracticable to apply the largest-profits-interest rule, the partner
selected by the Commissioner is treated as the tax matters partner.
Since 1982, virtually all states and several foreign jurisdictions have
enacted laws providing for the formation of limited liability companies
(LLCs). LLCs in most jurisdictions may be classified for Federal tax
purposes either as partnerships or associations that are taxable as
corporations, depending on the characteristics of the LLC. For an LLC
classified as a partnership for Federal tax purposes, an important issue
is determining who is the LLC's tax matters partner.
The proposed regulations state which members of an LLC classified as a
partnership for Federal tax purposes may be designated as the LLC's tax
matters partner. For administrative simplicity, the proposed
regulations also consolidate all the published guidance on tax matters
The full text of the proposed regulations and information about
submitting comments on the regulations appears in the Federal Register
dated October 30, 1995.
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