Meredith Is a Passive 30% Member of the MNO LLC

question 82

Multiple Choice

Meredith is a passive 30% member of the MNO LLC. She is not a managing member and she does not participate in any activities of the LLC. Her interest is more in the nature of an investment. In the current year, Meredith's distributive share of income from the LLC was $50,000. In addition, she received a guaranteed payment of $40,000 for the use of her capital. Assume that her income from other sources exceeds $500,000. How much of Meredith's LLC income will be subject to the self-employment (SE) tax (under the Proposed Regulations) and the net investment income (NII) tax? (Disregard the additional Medicare tax on upper-income taxpayers.)

• A) $0 SE tax? $0 NII tax.
• B) $0 SE tax? $40,000 NII tax.
• C) $0 SE tax? $90,000 NII tax.
• D) $50,000 SE tax? $40,000 NII tax.
• E) $90,000 SE tax? $0 NII tax.

---

Definitions:

Control Account

An account in the general ledger used to summarize the details of a subservient ledger.

Subsidiary Accounts

Detailed records that support and summarize information in a controlling account, often used for individual items or customers.

Cash Refund

An amount paid by the seller to the buyer for merchandise that is defective, is damaged during shipment, or does not meet the buyer’s expectations.

Cash Payments Journal

The special journal in which all cash payments are recorded.