7-1 Activity: Client Lettertax 655 Federal Income Tax Of Cor

7-1 Activity: Client LetterTAX 655 Federal Income Tax of CorporationsSouthern New Hampshire University 1 08:35:57 GMT -05:00Juwan Smith and his 3 friends created Smith & Associates LLP, a limited liability part- nership where the income will be generated by representing those involved in bankruptcy and foreclosures, and will be split equally among them. The Internal Revenue Service (IRS) started taking legal action to clarify the application of self-employment tax laws to Limited Liability Company (LLC). What I found is, “Sec. 1402(a)(13) provides that a guaranteed payment, under Sec. 707(c), to an LLC member for services rendered is subject to self-employment tax. A signif- icant number of taxpayers have claimed that none of the residual profits after deducting guaran- teed payments, or so-called distributive earnings, are subject to self-employment tax even ifthose earnings were allocated to a managing or otherwise actively working member. To be fair, some taxpayers have taken a more conservative view by applying proposed regulations and lim- ited case law to subject some or all of their distributive share to self-employment income tax” (Lewis, 2018). This law allows for distributive earnings to be allocated to the limited partner and be excluded for self employment