LLCs, Partnerships and the Tax Time Machine

Many LLCs and partnerships amended their governing documents in 2018 because of the various new tax rules that came into effect last year.

For example, many pass-throughs converted so-called “guaranteed payment” arrangements. Under new IRC Section 199A, certain types of income qualify for a lower income tax rate – depending on the facts, the federal tax on such income can be reduced by as much as 20%. However, this tax benefit does not apply to income received under guaranteed payment clauses.  By eliminating these arrangements, recipients may be able to qualify for the new tax benefit.

What about partnerships or LLCs that did not change their agreements during 2018? Luckily, the IRS has a long-standing regulation in effect that permits retroactive amendments. In general, changes to the governing documents of a pass-through entity can be made retroactive to a given tax return so long as the changes are executed by the due date (not counting extensions) of that return.

For calendar year pass-through entities, the formal due date for 2018 returns is March 15, 2019. This means it may not be too late to make changes to your governing documents to conform to the new tax landscape.

For more information regarding the New Tax Reform, please contact Joseph Mandarino.

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