Magazine article The CPA Journal

The IRS Rules on a Texas Limited Liability Company

Magazine article The CPA Journal

The IRS Rules on a Texas Limited Liability Company

Article excerpt

In PLR 9218078, the IRS examined a limited liability company that will be organized under the Texas Limited Liability Company Act with three initial members, all of who are individuals, to conduct a commercial real estate business.

The IRS determined, as required under Reg. Sec. 301.7701-2(a)(2), that the company has associates and an objective of carrying on a business and dividing the gains from it. The next hurdle to overcome, in order to be classified as a partnership, is that it must lack at least two of the corporate characteristics enumerated in Reg. Sec. 301.77012(a)(3). Because the company's regulations provide that a transferee of a membership interest does not become a substituted member unless consent is given by the company's manager or the holder of two-thirds of the interests in the company (not counting the transferred interest), the IRS found that the company lacks the corporate characteristic of free transferability of interests under Reg. …

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