SECA Taxes Owed by LLC, LP Members On Their Shares of Income, IRS Says

The Internal Revenue Service advocates how LLC members and limited partners owe SECA taxes on their share of income. For the past few years, the agency has been monitoring these individuals by conducting audits on professional-service companies.

The Large Business and International Division of the Internal Revenue Service (IRS) has an active risk campaign of how limited partners and members of limited liability companies must pay self-employment taxes (SECA taxes) on their share of income.

According to Santoli, for the past few years, IRS examiners have been monitoring how limited partners and LLC members who practice accounting, architecture, law, medicine, etc. pay SECA taxes by conducting audits on hundreds of professional-service companies.

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Rules About SECA Taxes

According to Taylor, in 2017, the U.S. Tax Court ruled that members of law firms who actively participate in the management and operations of limited liability companies were liable for SECA taxes. However, lawyers argued that their interests in the LLC qualified as a limited partnership that exempts them from SECA taxes on their share of income.

Nonetheless, the Tax Court disagreed, stating that the lawyers were not mere investors in a partnership. Instead, the Court insisted that the lawyers actively participate in the business operations with their management powers and by offering legal services.

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