Tax Considerations in Drafting LLC Operating Agreements (Update)

A limited liability company's operating agreement must address many topics – who are the members and who can become members, how decisions will be made, how the business will be capitalized, and how profits will be shared, just to name a few. But many attorneys fail to appreciate the degree to which the tax treatment of an LLC and its members is driven by the contents of its operating agreement. In this program, tax and corporate attorney Jason Navarino will discuss the various tax topics that a well-drafted operating agreement should cover, including entity classification for income tax purposes, how to allocate profits and losses in a manner that will be respected by the IRS and potentially benefit the members, tax distributions, withholding and tax reporting obligations, tax issues that arise in the case of transfers, how to deal with audits and tax proceedings, and how to ensure that tax-preferred profits interests are respected as such.  The program will also address several recent changes in the underlying tax law, including under the Tax Cuts and Jobs Act of 2017, and how these changes should be addressed in operating agreements.

Learning Objectives:

1. Recognize the differences between classification as a disregarded entity, partnership, and S corporation
2. Gain familiarity with the forced/target allocation method so that clients can achieve their desired economic deals and still have their tax allocations respected by the IRS
3. Examine the difference between profit distributions and guaranteed payments, and how to use this distinction to maximize qualified business income deductions
4. Navigate operating agreement provisions with respect to tax distributions, withholding, tax returns, and audits
5.  Explore the tax issues that arise in connection with membership interest transfers
6. Identify how to create profits interests that can be issued without exposing the recipient to upfront tax liability