Can an LLC 50% Owner receive deferred compensation in their capacity as an employee of the LLC

[Guest ajensen]

Can a 50% LLC owner receive deferred compensation in their capacity as an employee of the LLC? I'm unfamiliar with def'd comp for LLC members. My client wants to offer ownership to a key employee but still wants to tie the employee to the entity for 5 yrs via some form of forfeiture. Thanks!

[Locust]

[Assuming the LLC is taxed as a partnership] there is no reason that the partnership could not impose a service condition on payment of a bonus. As a partner, the compensation will be considered partnership (self employment) income. [Any compensation received by a partner, whether for services or capital interests, is partnership income and not income as an employee.] The bonus won't be considered a deferral at all if the bonus is paid by 3/15 of the year following vesting. If it is not paid by 3/15 it might have to meet the 409A rules, which can be tricky when there is a risk of forfeiture.

[E as in ERISA]

I think that the IRS recognizes that you can conceptually have deferred compensation with partners. But they haven't figured out what the rules are. Deferred compensation in the context of partners is a bit more complicated because of the partnership taxation. The partnership is a flow through entity. There is generally no taxed paid at that level. The partnership is basically ignored for tax purposes and the individuals are taxed on their allocation of the income. If the income isn't allocated to a specific partner then they are all going to get taxed on their ratable share of it. So it becomes difficult for one partner to have deferred compensation. I think that you need partnership experts to help answer the questions.

[brad44]

Any updated answers on this post? I would like to know as well please