You can get as much of the LLC as you like, as a capital distribution, as long as it does not violate the terms of the enterprise agreement. If you are the only member, you can withdraw whatever you want, but you have to leave enough money in the business for its normal operations. Another possibility is to provide for a reduction in the interest rates of the defaulting member in the company, with a corresponding increase in the executive members who provide the share of the capital of the defaulting member. This is sometimes referred to as «squeeze-down» or «Cram-down.» As a general rule, the percentages of the capital account are separated from the profit/loss allocations and distributions on the basis of the terms of the company`s enterprise agreement. A commander is not considered to be materially involved in the activities of a limited partnership unless the regulations are expressly authorized. The IRS has adopted temporary regulations providing that a commander is considered to be a significant participant in the exam qualification (1), (5) or (6). For example, a commander must participate in more than 500 hours or have participated materially for five of the past ten years, or, if it is a personal service, three years earlier. On the other hand, it is considered that a shareholder of Company S participates significantly by completing one of the seven audits. Determining whether an activity will be a passive activity is a complex and relatively unknown area. To discuss these complexities, see Bryant, Jones and Beaudrot, Georgia LLC/LLP Handbook pps. 128 to 132.Accounting methodsAfter code 446 c), a tax officer can normally use either the cash method or the demarcation method.
However, Code 448 (a) prohibits a «tax dwelling» from using the cash accounting method. A tax dwelling is one of the following undertakings: (1) any business (with the exception of a C company) if, at any time, shares of such a business have been put up for sale to be registered with a federal or state agency authorized to regulate the offer of securities for sale; (2) any «tax housing» within the meaning of Code 6662 (d) (2) (C) (ii); and (3) a «union» within the meaning of Code 1256 e) (3) (B). Although it is not obvious to blush on the former, this status can be considered for many LLC. The IRS has published several private letters on this subject. To Priv. Ltr. Rul. 9321047 (February 25, 1993), a law firm acting as a general partnership with a cash method decided to convert to LLC. First, the IRS found that LLC was not a «business» as long as it did not in itself offer shares in an offer to be registered, which the law firm it represented never did and never did. The IRS also found that the LLC was not a «union» and found that this issue depends on how the MEMBERS of the LLC are classified and the distribution of their losses.
The IRS found that LLC members were not limited contractors, based on the law firm`s statements, that all LLC members would continue to operate in the practice of law and that all members would be required to vote for the LLC to take certain steps. Subsequent decisions by individuals were followed by a similar description. Although not reviewed, the IRS does not appear to view LLC members as simple sponsorship because they had limited liability. Finally, the IRS found that the LLC was not a «tax housing» within the meaning of Code 6662 d) (2) (C) (ii), on the basis of the law firm`s statements, that the partners would participate in the management of the LLC, that the LLC would be organized to participate in the practice of law, and that the LLC would not be organized for federal revenue prevention reasons.