Jane Jungle is a member in a limited liability company, Tarzan LLC, that has historically been profitable but is expecting to generate losses in the near future because of a weak local economy. In addition to the hours she works as an employee of a local business, she currently spends approximately 135 hours per year helping to manage Tarzan LLC. Other members of Tarzan LLC each work approximately 175 hours per year in the LLC, and the time Jane and other members spend managing the LLC has remained constant since she joined the company three years ago. Janeâ€™s tax basis and amount at-risk are large compared to her share of projected losses; however, she is concerned that her ability to deduct her share of the projected losses will be limited by the passive activity loss rules.
a.) As an LLC member, will Janeâ€™s share of losses be presumed to be passive as they are for limited partners? Why or why not? [Hint: See Â§469(h)(2), Garnett v. Commissioner, 132 T.C. 368 (2009), and Prop. Reg. Â§ 1.469-5(e)(3)(i).]
b.) Assuming Janeâ€™s losses are not presumed to be passive, is she devoting sufficient time to the LLC to be considered a material participant? Why or why not?
c.) What would you recommend to Jane to help her achieve a more favorable tax outcome?
Prepare a tax research memo addressing the question that has been raised. You will need to support your conclusion using primary sources of tax law. Your textbook is NOT primary authority nor are You must use proper citation form in your memo (see Chapter 2 for help with citation form). The form for this communication should be professional and in the form of a tax research memo (example posted on Blackboard and a similar example in your textbook). Do yourself a favor and look at the grading rubric before you submit. This memo should be whatever length you feel is appropriate to resolve the issues. We do NOT use a bibliography or list of references in a tax research memo. You will see that citations are within the text of the document in the example. Once a court case has been cited in full, it can be referred to using simply the name in italics.
You are required to INDIVIDUALLY prepare this document. Please upload your memo into Turnitin in Blackboard before the due date and time
AN EXAMPLE IS ATTACHED, MUST INCLUDE CITED OUTSIDE SOURCES..