Guest mmcgee Posted July 21, 2003 Posted July 21, 2003 An LLC that is taxed as a partnership has a partner that is a corporation. An employee of the LLC is the owner of the corporate partner. Can the employee of the partnership participate in the LLC's cafeteria plan or is the employee considered a partner of the LLC through his/her ownership of the corporate partner of the LLC?
SLuskin Posted July 21, 2003 Posted July 21, 2003 No, that person is still self-employed and not an employee.
Guest mmcgee Posted July 21, 2003 Posted July 21, 2003 Even if the person is an employee of the LLC? The person receives wages from the LLC. Are there any regulations that can be referenced that will support that the employee who is an owner of the corporation that is a partner in the LLC that the employee is employed cannot participate? The person that asked me this question will probably want something to support my opinion.
Ron Snyder Posted July 21, 2003 Posted July 21, 2003 Take a look at Revenue Ruling 91-26. I know of attorneys and CPAs who believe that IRS addressed this in a RR because they don't dare try to implement Regulations regarding this issue. Under the Code, if the employee is an employee, the corporation is entitled to a deduction. If the owner is an owner, the deduction is passed through to the 2% owner. The problem exists when a 2% owner is also an employee. In my opinion, IRS is wrong, but they have published their position for many years now (since this ruling was issued and since the repeal of Section 89). The instructions for the LLC's partnership return are clear that IRS tells you to pass through the deductions to the owner's return.
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