Client wants to set up an LLC where a President gets 25% of the membership interests but contributes no capital other than his services. Governance is supposed to be handled by the vote of the members based on percentage ownership. It seems like the President is going to recognize tax on the value of his contributed services unless we structure his interests as profits interests. Would welcome anyone’s thoughts. Feel free to DM me.

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lol, please talk to an exec comp or tax attorney instead of trying to get free legal advice on a forum like this one where you get answers like the one from CS1 (sorry CS1, but it’s clear why you got a B- in tax law 😂). the answer here is nuanced and depends on a number of other facts which may lead to a number of other follow-up questions and actions to take.

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Exactly what MP said. Hire someone. This is nuanced.

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I think it's hard that the IRS would impute income on ownership unless profits are realized. Untill he sells ownership in the business or realizes profits I don't think it will be taxed. Then again I got a B- in tax law so who knows.

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To clarify: I’ve got a call scheduled with an exec comp lawyer later today. Wouldn’t mind thoughts from the crowd in advance of the call to be more informed and intelligent on the issues.

It depends. The operating agreement will have to be analyzed. For example, if there is a liquidation based on capital accounts then probably no tax to president because there has been no accession to wealth. This is because, like you said, the president is only getting a profits interest. There are numerous ways to structure this so president does not have tax.

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