Employee Compensation & Employment Taxes

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1 Employee Compensation & Employment Taxes Charles R. Beaudrot, Jr. (404) Morris, Manning & Martin, LLP 3343 Peachtree Road, NE 1600 Atlanta Financial Center Atlanta, Georgia 30326

2 Overview Employers and employees must be concerned with three types of employment taxes: Social Security Taxes - Federal Insurance Contributions Act ( FICA ) - I.R.C Unemployment - Federal Unemployment Tax Act ( FUTA ) - a joint federal and state government program for unemployment insurance - I.R.C ; and Withholding on Wages - I.R.C and

3 Overview Self-employed persons are subject to the Self- Employment Contributions Act ( SECA ), I.R.C The SECA rates are 12.4% for Old Age, Survivors, and Disability Insurance and 2.9% for Hospital Insurance for a combined total of 15.3%. The wage base for Old Age, Survivors, and Disability Insurance is capped at $106,800 in 2009, but Hospital Insurance has no cap. 3

4 Rates The current FICA is also composed of two elements: Old Age, Survivors, and Disability Insurance ( OASDI ) at 6.2% and Hospital Insurance ( HI ) at 1.45%. This is imposed on an annual base which is currently capped at $106,800 for The employer pays this amount under I.R.C and the employee pays a matching amount, under I.R.C which is withheld from the employees wages under I.R.C

5 Rates FUTA tax is currently 6.2% of the first $7,000 of taxable wages. I.R.C. 3306(b)(1). 5

6 Responsible Person Penalty The teeth behind enforcement is the responsible person penalty of I.R.C which makes not only the entity liable but also individuals responsible for compliance personally liable. The analogous Georgia provision is O.C.G.A

7 Employee Status The obligation to collect and remit FICA and FUTA is tied to the status of the payee as either a common law or statutory employee. The determination of whether a worker is a common law employee means the same thing for FICA purposes as it does for FUTA purposes. See I.R.C. 3121(d) and 3306(i). 7

8 Employee Status While employee has not been defined for income tax withholding purposes, the authorities have assumed that employee in the income tax withholding statutes has the same meaning. 8

9 Employee Status The common law test is set out in Treas. Reg (d) and is often referred to as the control test. The principal question is whether the employer exercises sufficient control over the method or manner of performance of services by the service provider. 9

10 Employee Status The IRS s summary of the so-called twenty factors that are to be used in determining whether the control test is met is contained in Rev. Rul , C.B

11 Employee Status The IRS has also acknowledged that there are other factors that may be important. See e.g., IRS Employment Text Handbook 104-6, IRS agents are urged to scrutinize behavioral control, financial control, and the relationship of the parties. 11

12 Employee Status This is a fertile area for dispute and there are legions of cases with a number of industries. 12

13 Form SS-8 The IRS provides Form SS-8 to be used for the determination of worker status for purposes of federal employment tax and income tax withholding. Suffice it to say that Form SS-8 is the proverbial when did you stop beating your wife questionnaire. It is extremely dangerous to answer these questions unless appropriately qualified and explained. See also IRS Publication 15-A, Employers Supplemental Tax Guide. 13

14 Section 530 Since 1978, the classification of workers for employment tax purposes has been significantly affected by the 530 Safe Harbor statute. Section 530 refers to the section of the Revenue Act of 1978 where the original Safe Harbor statute is found. Although the Safe Harbor was intended to be temporary, it has been indefinitely extended. It has not been incorporated into the Internal Revenue Code, however. 14

15 Section 530 The purpose of 530 was to prevent the IRS from retroactively reclassifying workers from independent contractor status to employee status, if the employer meets certain tests. Compliance with the Safe Harbor provisions allows the business owner to escape the burdens of demonstrating the appropriate status under the statutory provisions or common law rules. See Rev. Proc , , C.B

16 Section 530 There are two categories of employers designated by Congress for 530 relief. 16

17 Section 530 Pre-1979 employment tax liabilities were terminated for those employers who had reasonable bases for using independent contractor treatment and filed all required federal tax returns after 1978 on an independent contractor basis. 17

18 Section 530 Section 530 provides prospective relief for employers who have a reasonable basis for using independent contractor status for their employees and filed all required federal tax returns for any period beginning after Consistency of treatment is required. 18

19 Section 530 Section 530 cases impose basically three tests. 1. A reasonable basis for treating the workers as an independent contractor; 2. Treatment consistent with the treatment that took place with substantially similar positions; and 3. Filing all required federal tax returns on the basis of the consistency with the independent contractor classification. 19

20 Statutory Employees For FICA and FUTA purposes, I.R.C. 3121(d) defines the following as employee without regard to common law status. Agents and commission drivers (for someone other than the driver or agent acting as an independent driver or agent) Full-time life insurance salesman (for one company) Home workers (piece work) and Traveling salesmen (for one company) 20

21 Statutory Non-Employees For FICA and FUTA purposes, student employees are generally exempt under I.R.C. 3121(b)(10) and 3306(c)(10)(B). 21

22 Statutory Non-Employees And you will be happy to know that the President, Vice President, federal judges, and members of Congress are excluded from FICA under I.R.C. 3121(b)(5) C, E and F while federal felons are excluded under I.R.C. 3121(b)(6)(A). 22

23 Treatment of Real Estate Agents and Direct Sellers. I.R.C I.R.C specifically defines as nonemployees certain qualified real estate agents and direct sellers. This is without regard to other common law tests. This is an extremely important exemption for the real estate industry. 23

24 Recent Employment Cases Illustrating Issues Blackwater. One of the most recent and notorious examples of the independent/employee classification issues involves Blackwater Security Consulting, LLC. In a private ruling issue March 30, 2007, the IRS concluded that an armed security guard in Iraq did not constitute an independent contractor, but was indeed an employee. This resulted in the national scandal when it was identified by Rep. Henry Waxman of the Committee on Oversight and Government Reform as abusive, resulting in a storm of publicity on the issue. 24

25 Recent Employment Cases Illustrating Issues FedEx. Another recent and interesting case is FedEx Home Delivery v. National Labor Relations Board, 2009 U.S. App. LEXIS 8272 (D.C. Cir. Apr. 21, 2009)*, which held that FedEx home delivery drivers were independent contractors and not employees. Although it arose in the context of a union organizing campaign, it is illustrative of the high stakes that the employee/independent contractor determination raises. * [corrected citation] 25

26 Employment Tax Issues in Connection with Reduction in Force ( RIF ) When is a consultant not an employee? One recurrent issue in the RIF setting is the terminated employee who has been rehired as a consultant. Care must be taken to avoid reemployment status. 26

27 Withholding on Severance Severance and other separation pay is subject to withholding, FICA, and FUTA taxes as wages. 27

28 Exception for Supplemental Unemployment Benefits There is an exception from certain taxes for supplemental unemployment benefits that meet certain criteria. These payments are taxable as wages and subject to income tax withholding but not subject to Social Security (6.2%), Medicare (1.45%), or FUTA. In general, severance payments which are exempt from employment taxes only when the former employer meets the conditions for state unemployment insurance. The payments must be made in installments rather than in a lump sum. 28

29 Employment Tax Issues in Settlements of Employment Tax Cases In general, damage awards or settlements made in connection with employment relationship are wages for employment tax purposes. 29

30 Employment Tax Issues in Settlements of Employment Tax Cases Back pay is subject to employment taxes. This is true even if the worker receiving the payments is no longer employed by the payor or for other purposes at the time the payment is made. I.R.C. 3401; United States v. Cleveland Indians Baseball Co., 532 U.S. 200 (2001). See also Social Sec. Bd. v. Nierotko, 327 U.S. 358 (1946). 30

31 Employment Tax Issues in Settlements of Employment Tax Cases Front pay which is awarded to an employee for future service the employee would have performed if the employer had not been terminated wrongfully is also wages for employment tax. There is some dissent from this position in the courts. See e.g. Dotson v. U.S., 87 F.3d 682, 690 (5th Cir. 1996), holding that payments are not wages if not for services already performed. Contra Social Security Bd. v. Nierotko, supra. 31

32 Employment Tax Issues in Settlements of Employment Tax Cases Title VII and other similar amounts are subject to employment taxes. Amounts paid for employees who were not hired because of violation of workers rights or civil rights statutes are also wages. See Rev. Rul , C.B. 303; contra Newhouse v. McCormick & Co., 157 F.3d 582 (8th Cir. 1998). 32

33 Employment Tax Issues in Settlements of Employment Tax Cases Severance payments and other termination payments are wages subject to employment tax and withholding. See Treas. Reg (a)-1(b)(4); Rev. Rul , C.B

34 Employment Tax Issues in Settlements of Employment Tax Cases Exceptions. Certain amounts are not subject to employment taxes: (a) Legally designated interest and attorneys fees. (See Rev. Rul , C.B. 294); (b) Liquidated damages under the FLSA or under the Age Discrimination in Employment Act. (See Rev. Rul , C.B. 313); (c) Amounts otherwise excludable from the employee s gross income, such as payments made directly by an employee for medical insurance. (See I.R.C. 106(a)(2008). (d) Damages attributable to loss of future earning capacity may not be wages in certain cases. (See Dotson v. U.S., 87 F.3d 682 (5th Cir. 1996)). 34

35 Withholding for Emotional Distress and Personal Physical Injury Awards Personal Injury Awards. Damages (other than punitive damages) and other amounts received pursuant to a judgment or settlement for a personal injury or sickness are excludible from gross income, provided the harm is physical and are therefore not subject to employment tax or withholding. I.R.C. 104(a)(2). 35

36 Withholding for Emotional Distress and Personal Physical Injury Awards Emotional Distress. Non-punitive damages received pursuant to a judgment or settlement in a personal injury case are excludible from gross income only if the personal injury or sickness is physical and the payments are received on account of such injury or sickness. Payments made for emotional distress, although taxable, may not constitute wages and therefore may not be subject to employment taxes or withholding, however. 36

37 Information Reporting on Settlements The amounts subject to treatment as wages are subject to withholding and reporting by the payor on Form W-2. Payments that are not wages are subject to reporting on Form However, only the parties engaged in a trade or business are required to file a Form

38 Employment Tax Issues for Partnerships and LLCs Partner vs. Employee. Can a service provider who holds a vested equity interest in an LLC or other entity taxed as a partnership ever be an employee of the entity for tax purposes? The answer is reasonably clear and it is no. 38

39 Employment Tax Issues for Partnerships and LLCs I.R.C. 707(a) provides that if a partner engages in a transaction with a partnership other than in his capacity as a member of such partnership, the transaction shall, except as otherwise provided in this section, be considered as occurring between the partnership and one who is not a partner. 39

40 I.R.C. 707(c) provides: Employment Tax Issues for Partnerships and LLCs Guaranteed Payments. To the extent determined without regard to the income of the partnership, payments to a partner for services or the use of capital shall be considered as made to one who is not a member of the partnership, but only for the purposes of section 61(a) (relating to gross income) and, subject to section 263, for purposes of section 162(a) (relating to trade or business expenses). 40

41 Employment Tax Issues for Partnerships and LLCs The partnership deducts guaranteed payments and the recipient partner has ordinary income. A partner who receives guaranteed payments is not regarded as an employee of the partnership for the purposes of withholding tax at source, deferred compensation plans, etc. Treas. Reg (c). See generally William S. McKee et al., Federal Taxation of Partnerships & Partners (4th ed. 2009). 41

42 Employment Tax Issues for Partnerships and LLCs Tax Consequences to Employee Partner. The tax consequences of members of an LLC being treated as partners, rather than employees, for compensation purposes include the following: 42

43 Employment Tax Issues for Partnerships and LLCs K-1s. The member will receive a Schedule K-1 reflecting the member s allocable portion of the partnership s income and any guaranteed payments rather than a W-2. 43

44 Employment Tax Issues for Partnerships and LLCs Estimated Taxes. The member will need to plan for quarterly estimated tax payments. 44

45 Employment Tax Issues for Partnerships and LLCs Self-Employment Tax. Members are generally subject to the selfemployment tax rules of I.R.C

46 Employment Tax Issues for Partnerships and LLCs Fringe Benefits. Certain fringe benefits normally excluded from income in the corporate setting will be taxable to the member. These include group term life insurance (I.R.C. 79), payments received under accident or health plans (I.R.C. 105), employer payments to accident and health plans (I.R.C. 106), meals and lodging for the convenience of the employer (I.R.C. 119), and benefits received under cafeteria plans (I.R.C. 125). Other fringe benefits are excluded from both employee and partner compensation, including working condition fringes (I.R.C. 132). 46

47 Employment Tax Issues for Partnerships and LLCs Health Insurance and Benefits. In the corporate setting, an employee excludes benefits received from a health plan, including a plan self-insured by the employer. An LLC member taxed as a partner includes insurance premiums paid by the partnership in taxable compensation under I.R.C. 707(c). If the partnership maintains a self-insured health plan, partners may find the actual health benefits (payments on submitted claims) are compensation when received. Treas. Reg (b). 47

48 Self-Employment Tax Issues for Members of LLCs Rates. The self-employment tax rate currently is 15.3%, with the FICA portion at 12.4% and the hospital insurance portion (which is uncapped) at 2.9%. I.R.C. 1401(a) and (b). The tax base for the FICA portion is limited to $106,800 of selfemployment income for 2009, but the 2.9% Medicare insurance portion has no ceiling. I.R.C. 1402(b). In 2009, a self-employed individual is allowed an above-theline deduction for one-half (50%) of his self-employment tax liability, thus reducing the effective burden of the uncapped Medicare insurance to approximately 2.33%. I.R.C. 164(f). 48

49 Self-Employment Tax Issues for Members of LLCs Limited Partner Exclusion. A taxpayer s selfemployment income includes earnings derived directly from the partner s distributive share of the income or loss from any trade or business carried on by a partnership of which that person is a partner, subject to certain exclusions and to a special exclusion for limited partners in I.R.C. 1402(a)(13). I.R.C. 1402(a); Treas.Reg (a)-2(d) and (a)-4(d). 49

50 Self-Employment Tax Issues for Members of LLCs Under I.R.C. 1402(a)(13), self-employment income does not include the distributive share of partnership income (other than I.R.C. 707(c) guaranteed payments for services) allocable to a limited partner. However, I.R.C does not address whether a member of a multiple-member LLC will qualify for the limited partner exclusion from selfemployment tax. 50

51 Self-Employment Tax Issues for Members of LLCs LLC Member as a Limited Partner. An LLC member is not necessarily a limited partner for purposes of the self-employment tax even though the member is protected from the liabilities of the LLC. For instance, the IRS held in PLR (May 16, 1994) that a general partnership s conversion to an LLC did not relieve a former general partner from paying self-employment tax on his allocable share of the LLC s business income. The taxpayer/llc member had argued that the limited liability created by the LLC brought him within the limited partner exception of I.R.C. 1402(a)(13), even though the taxpayer was active in the business. 51

52 Self-Employment Tax Issues for Members of LLCs On December 29, 1994, the IRS issued Prop. Reg (a)-18; 59 Fed. Reg (December 29, 1994), which provided LLC members some guidance on the self-employment tax issue. These Regulations, however, were much criticized because they could result in varying selfemployment tax treatment of LLC members based upon state-law distinctions, even where the participation of the member in the LLC s business was substantially the same from one state to the next. 52

53 Self-Employment Tax Issues for Members of LLCs As a result of this criticism, on January 10, 1997 the IRS withdrew the earlier Proposed Regulations and promulgated a new set of Proposed Regulations (the Second Proposed Regulations ) which do not depend upon statelaw distinctions for purposes of defining a selfemployment tax limited partner. See Prop. Reg (a)-2(d) through (j); 62 Fed. Reg (January 13, 1997). 53

54 Self-Employment Tax Issues for Members of LLCs The Second Proposed Regulations would have applied to all entities classified as partnerships for federal income tax purposes regardless of the state law characterization of the entity (i.e., without regard to whether the entity is a general partnership, an LP, an LLC, an LLP, an LLLP, or other entity for state law purposes). 54

55 Self-Employment Tax Issues for Members of LLCs Summary of the Second Proposed Regulations. The preamble to the Second Proposed Regulations provide a concise summary, as follows: Generally, an individual will be treated as a limited partner under the proposed regulations unless the individual (1) has personal liability (as defined in section (b)(2)(ii) of the Procedure and Administration Regulations) for the debts of or claims against the partnership by reason of being a partner; (2) has authority to contract on behalf of the partnership under the statute or law pursuant to which the partnership is organized; or (3) participates in the partnership's trade or business for more than 500 hours during the taxable year. If, however, substantially all of the activities of a partnership involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, or consulting, any individual who provides services as part of that trade or business will not be considered a limited partner. 55

56 Self-Employment Tax Issues for Members of LLCs The Second Proposed Regulations allow an individual who is not a limited partner for I.R.C. 1402(a)(13) purposes to exclude from net earnings from self-employment a portion of that individual's distributive share if the individual holds more than one class of interest in the partnership. 56

57 Self-Employment Tax Issues for Members of LLCs Similarly, the Second Proposed Regulations permit an individual that participates in the trade or business of the partnership to bifurcate the partner s distributive share by splitting out guaranteed payments for services. 57

58 Self-Employment Tax Issues for Members of LLCs Such bifurcation of interests is permitted only to the extent the individual's distributive share is identical to the distributive share of partners who qualify as limited partners under the proposed regulation and who own a substantial interest in the partnership. Together, these rules exclude from self-employment amounts that are returns on capital invested in the partnership. 58

59 Self-Employment Tax Issues for Members of LLCs But none of this is effective for personal service entities producing per se selfemployment income, i.e., health, law, engineering, etc. 59

60 Self-Employment Tax Issues for Members of LLCs The Second Proposed Regulations have never been finalized. However, as a practical matter, the Treasury seems to be taking the position that taxpayers who report on the selfemployment tax issue consistently with the Proposed Regulations will not be challenged. 60

61 Self-Employment Tax Issues for Members of LLCs For the past ten years, the author has probably polled over 5,000 accountants and has literally never had a single situation where someone has indicated that the IRS challenged treatment of the self-employment taxes if in compliance with the Proposed Regulations. 61

62 Self-Employment Tax Issues for Members of LLCs On the other hand, with respect to personal service organizations such as law, accounting and other firms, which are identified in the Proposed Regulations as generating per se self-employment taxable income, the strategy of interposing an S- Corporation as the member has been used by a number of professional firms to reduce, although not eliminate, the self-employment tax issue for professionals. 62

63 LLC with S Corp Members M-1 M-2 M-3 S-1 S-2 S-3 LLC 63

64 Self-Employment Tax Issues for Members of LLCs Other alternatives to escape the issue include use of a subsidiary payroll corporation or possibly independent PEO. 64

65 LLC with Payroll Subsidiary M 1 M 2 M 3 LLC C Corp Payroll Subsidiary 65

66 LLC with PEO M-1 M-2 M-3 PEO LLC 66

67 Self-Employment Tax Issues for Members of LLCs In light of the current budget crisis, with the current Administration focusing on tax compliance and the desire to impose greater withholding obligations, it is reasonable to expect that we may see legislation in this area. 67

68 Changes in the Self-Employment Tax Rules of Single Member LLCs Effective January 1, 2009 Most single member LLCs either elect or are by default classified as disregarded entities for federal income tax purposes. Recent Treasury Regulations, however, change this result for Federal employment tax purposes. Treas. Reg (c) (as amended by TD 9356, I.R.B. 675). Effective January 1, 2009, limited liability companies that are disregarded for all other tax purposes will be treated as corporations for federal employment tax purposes. Id. 68

69 Changes in the Self-Employment Tax Rules of Single Member LLCs Effective January 1, 2009 Characterization of an otherwise disregarded entity as a corporation for federal employment tax purposes will be of limited benefit to taxpayers. Taxpayers will not be liable for unpaid employment taxes not paid by the LLC that are attributable to the employees of the LLC under the provisions of the I.R.C. 6672, so long as they are not responsible persons. See In re Macagone, 253 B.R. 99 (M.D. Fla. 2000); Thomsen v. United States 887 F.2d 12 (1st Cir. 1989). See also Stramaglia v. U.S., 2007 WL (E.D. Mich. 2007) for examples of dos and don ts. 69

70 Changes in the Self-Employment Tax Rules of Single Member LLCs Effective January 1, 2009 Rather than being treated uniformly for all tax purposes, the new regulations require that a single member LLC be treated as a disregarded entity for all taxes except federal employment taxes. Treas. Reg (c). In states that continue to view the owner as liable for state unemployment and withholding taxes, employment tax filings for state and federal purposes could be inconsistent. 70

71 Changes in the Self-Employment Tax Rules of Single Member LLCs Effective January 1, 2009 In Georgia, however, this is not an issue because of the consistency rules applicable -- the entity is taxed the same way in Georgia as it is for federal purposes. See O.C.G.A Moreover, Georgia has already addressed the liability of owners and managers of LLCs for unpaid taxes in O.C.G.A

72 Changes in the Self-Employment Tax Rules of Single Member LLCs Effective January 1, 2009 A disregarded single member LLC that has employees, will now have to report and pay federal employment taxes under its own name and have its own taxpayer identification number. The Regulations preserve the exemption from federal unemployment tax contributions by charities that use singlemember LLCs. Thus, for instance, a disregarded entity owned solely by an I.R.C. 501(c)(3) organization will not be subject to FUTA tax on wages it pays its employees. See Preamble to TD-9356, I.R.B. 675, Summary of Comments and Changes Made, para.4. 72

73 Changes in the Self-Employment Tax Rules of Single Member LLCs Effective January 1, 2009 Also, resort can be had to the Common Paymaster rules (see Treas. Reg (s)-1 and (s)-1T) or to a Professional Employer Organization ( PEO ) structure (although remember PEOs raise many potential issues and care must be taken). 73

74 Changes in the Self-Employment Tax Rules of Single Member LLCs Effective January 1, 2009 Among the not-so-obvious collateral tax issues created by the new rules is the potentially important (and possibly adverse) effect on existing employee retirement and fringe benefit plans. 74

75 When is a Partner an Employee and Not a Partner? Under current law, an employee who receives a partnership interest, particularly a profits interest, is not automatically treated as a partner for federal tax purposes. 75

76 When is a Partner an Employee and Not a Partner? To the extent a person receives a substantially vested interest, or a non-vested interest for which an 83(b) election is made, the employee generally will be treated as a partner as of the date of receipt. The partner will be taxed upon receipt of the interest in an amount equal to the excess of its value over the amount, if any, paid for the interest, and thereafter will be taxed on the partners distributive share of partnership income under I.R.C

77 When is a Partner an Employee and Not a Partner? If the interest is substantially unvested, and no 83(b) election is filed, Rev. Proc clarifies that a service provider still will be treated as a partner if: (a) The partnership and the service provider both treat the service provider as a partner for tax purposes; (b) Neither the partnership nor any of the partners deducts any amount (as wages, compensation, or otherwise) for the fair market value of the interest; and (c) satisfied. Other conditions of Rev. Proc are 77

78 When is a Partner an Employee and Not a Partner? To the extent that these provisions are not met, however, and no 83(b) election is otherwise filed, the employee will not be treated as a partner because the interest is still subject to a substantial risk of forfeiture. As a result, the employee will not receive an allocation of profit or loss from the partnership until the interest vests. 78

79 When is a Partner an Employee and Not a Partner? Similarly under Notice and pending proposed regulations, if and when finalized, if the 83(b) election is not made, all distributions made to a partner with respect to an interest subject to a substantial risk of forfeiture will be treated as ordinary income and compensatory, and will be deductible by the partnership. 79

80 When is an S-Corporation Shareholder Not a Shareholder? This is the same result as for an S- Corporation where a shareholder who holds unvested stock has failed to make an 83(b) election. Treas. Reg (b)(3); PLR (February 25, 1991). 80

81 Pending Legislative Proposals In response to the perceived abuses associated with the public offerings such as the Blackstone offering and compensatory systems which result in hedge fund managers and private equity firm owners receiving substantial compensation as capital gain income, a number of legislative proposals are pending in Congress to tax income attributable to profits and other so-called carried interests at ordinary income tax rates. 81

82 Pending Legislative Proposals The Administration s 2010 budget proposal contains a specific proposal to increase the tax on carried interests earnings by partners in investment partnerships to the maximum income tax rate. 82

83 Pending Legislative Proposals The effect of this legislation, depending on the final shape it takes, would extend not merely to classic private equity funds and hedge funds, but presumably also to real estate and other investment entities which produce so-called carried interest. For further information and the position paper of the Real Estate Roundtable on this issue, see Carried Interest Taxation - Real Estate Talking Points, The Real Estate Roundtable, February [www.rer.org/site/c.hsjrkypfjrh/b /k.bbc4/taxation_of_c arried_interest.htm 83

84 Pending Legislative Proposals In light of the pressing need for revenue and a multi-trillion dollar deficit, it appears inevitable that there will be legislation in this area. Accordingly, the ability to grant profits interests and capital interests on tax favored basis may be coming to a close. Practitioners should, therefore, consider carefully the opportunities for planning in the current environment. 84

85 Disclaimer The materials and information presented and contained within this document are provided by MMM as general information only, and do not, and are not intended to constitute legal advice. Any opinions expressed within this document are solely the opinion of the individual author(s) and may not reflect the opinions of MMM, individual attorneys, or personnel, or the opinions of MMM clients. The materials and information are for the sole use of their recipient and should not be distributed or repurposed without the approval of the individual author(s) and Morris, Manning & Martin LLP. This document is Copyright 2011 Morris, Manning & Martin, LLP. All Rights Reserved worldwide. 85

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