Put aside 26 CFR § 1.469-5T(f)(3) & IRS Pub. 925:
My spouse & I own 50/50 an LLC. I am the Member-Manager; Spouse has no authority in the LLC (in The Agreement/legal accordance with MI LLC statues).
Prop Regs 1.1402(a)-2(h)(2)(i): “An individual is treated as a LP UNLESS the individual has PERSONAL liability…”
&
26 CFR § 301.7701-3(b)(2)(ii): …A member has PERSONAL liability if the creditors of entity may seek to satisfy the debts or claims against the entity from the member as such.
BUT, MI is a common law state. Generally, you are only PERSONALLY liable for a debt if your name is on the account, your credit info was used, or it was for necessary items.
If your SPOUSE incurred a business debt, you are usually not liable unless you cosigned it.
In MI, assets are NOT necessarily community property. Thus, it’s not clear a creditor could satisfy claims with Spouse assets. By the IRS, I am taxed as the ACTIVE general p, & my PERSONAL liability is limited to the LLC; however, Spouse is both PASSIVE & LLC protected. Given the liability criteria, can’t we argue Spouse is clearly NOT PERSONALLY liable? Just like any passive investor, & THUS can be taxed as a limited p?
1 Answer from Attorneys
It's an interesting question but way beyond the type of advice which can be discussed in an email conversation on this board.
What is your goal here; what result are you trying to get out of all of this?
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