​Meredith Is a Passive 30% Member of the MNO LLC

question 42

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.)

• 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.

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Definitions:

Cognitive Map

A cognitive map is a mental representation of a person's physical environment, allowing them to navigate and understand spatial information.

Sunk Costs

Expenses that have already been incurred and cannot be recovered, which should not influence future business decisions.

Subsequent Decision Making

Refers to the process of making decisions that follow an initial decision, taking into account the outcomes and new information that have emerged since the first decision.

Escalation Of Commitment

The phenomenon where people increase their investment in a decision despite new evidence suggesting it may be wrong or doomed.