Discussion:LLC operating agreements -Eat what you kill-Substantial Economic Effect

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Discussion Forum Index --> Tax Questions --> LLC operating agreements -Eat what you kill-Substantial Economic Effect

VTLaw (talk|edits) said:

12 January 2007
I am drafting an operating agreement for a 2 member llc that has an "Eat what you kill" compensation system. More experienced attorneys have told me that this is difficult and I am going to run afoul of the "substantial economic effects" test. I have just started my research, but it appears to me, that this type of compensation system does not violate the test (medical llc's seem to mostly operate on this type of compensation system). Are there any articles on ยง 704 that anyone can recommend?

JR1 (talk|edits) said:

January 12, 2007
Nah, but I don't see a problem. They're merely agreeing to divide profits based on their respective share of the work, and that's perfectly legit. Only in an LLC/1065.

Mark Eason (talk|edits) said:

15 January 2007
Have they thought about working out the compensation thru guranteed payments and the rest thru LLC earnings?

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