LLC Treated as Partnership?

[LLC_Issue]

For the party in interest rules of ERISA 3(14)(G), is an LLC treated as a partnership? Can't seem to find any express authority out there... Thanks.

[Lou S.]

An LLC is just a shell, you need to look at how they are treated for tax purposes. It could be as as sole prop., partnership, C-Corp, or S-Corp as I understand it.

But maybe there is a CPA on the board who can chime in with a more authoritative answer.

[LLC_Issue]

Thanks, Lou. I understand how an LLC is treated is federal tax purposes. However, what I am particularly concerned by is how one measures ownership interest of the LLC for purposes of the party in interest rules of 3(14)(G). It would make sense that you would just follow how the LLC is taxed, but I'm looking for some definitive source that says that.

[Lou S.]

(G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of—

(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,

(ii) the capital interest or profits interest of such partnership, or

(iii) the beneficial interest of such trust or estate,

is owned directly or indirectly, or held by persons described in subparagraph (A), (B), ©, (D), or (E);

If you are trying to get around the 50% control by making a distinction that it is called an LLC and not a Corporation or Partnership I don't think you'll get very far with either the DOL or IRS. All of these rules tend "look through" to what is really going on with respect to who has control or a controlling interest.

[LLC_Issue]

Lou,

I'm not trying to get around this provision, I'm just trying to determine whether for an LLC you look to (i) or (ii) as the test.

I cannot find a definitive source that says you just follow whether the LLC has elected to be treated as a partnership or corporation

[Lou S.]

I could be wrong but I think that is probably because the statue and regulations there under predate the popularity of LLC concept.

That said if the LLC is taxed as a corporation I would think you look at (i) and if the LLC is taxed as partnership you look at (ii).

I could be wrong on this but to me that just seems like common sense and it's what follows in nearly every other regulation when you are looking at control or beneficial ownership interest or similar such concept.

But maybe someone more in tune with the party in interest rules than I am can give you some additional insight of point to definitive source or citation for you, I'm not sure I can point to a specific one.