Questions to the Tax Desk

The National Public Accountant, November 2001 | Go to article overview

Questions to the Tax Desk


Q. Can an LLC pay salaries to its members?

A. This is one of our most frequently asked questions. An LLC can pay salaries to members if it has filed a Form 8832, electing to be treated as a corporation for tax purposes. The IRS will generally return the 1065 filed showing the salaries to members. Remember, an LLC is treated as a partnership, (with a few exceptions) unless the LLC has elected to be treated as a corporation.

Q. My client got married and her new husband moved into her home that she bad lived in for 10 years. A year later the house was sold. Are they eligible for the $500,000 exclusion of gain?

A. Most likely not. Section 121 states that both spouses must have lived in the primary residence for 2 years to be eligible for the maximum exclusion unless there were "unforeseen circumstances" that caused the sale. Although the Code and regulations have not specifically defined "unforeseen circumstances," illness and change of job fall into that category. If unforeseen circumstances were the reason for the sale, the couple would be eligible for a reduced exclusion based on the number of days the spouse lived in the house during the two-year period.

Q. A client owns 2 corporations and wants to consolidate them into one with no tax consequences. …

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