A husband and wife each own separate LLC's, 100% each. The 1563(e)(5) attribution exception notes that neither can be a director in each others' businesses. In this case being LLC's there are no directors, instead there are members. Does anyone think that makes a difference? Anyone know of a TAM or other legal precedent?

Interesting. I'm not aware of any specific guidance that's directly on point for this question.

Does either spouse have any legal authority whatsoever in the other's business - for example, to sign checks in the case of absence, incapacity, etc., of the other owner? If so, I'd say they don't qualify for the spousal noninvolvement exemption.

Sounds like the 'ole facts and circumstances routine.

Blinky,
since I'm behind the curve in this area, I'll just ask: any help for your question here?
http://benefitslink.com/modperl/qa.cgi?db=qa_who_is_employer

I assume they do not have a minor child. Otherwise it is a controlled group anyway.

Section 1563 deals with the corporations. I assume you came to 1563 from 414©, which says: "The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (b)." And subsection (b) refers to 1563. This is how 1.414©-4(b)(5)(ii)(B) describes this exception:

Such individual is not a member of the board of directors, a fiduciary, or an employee of such organization and does not participate in the management of such organization at any time during such taxable year.

Hope it helps.