7.1.2.c: Equity Compensation Plans for LLCs: Rev. Proc. 93-27 and Rev. Proc. 2001-43

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Abstract

Equity Compensation Plans for LLCs New IRS Guidance Enhances Planning Opportunities April 2002 By Dodd S. Griffith, Esq. Businesses often associate regulatory guidance with additional red tape — particularly when it comes from the IRS. Consequently, it may surprise many entrepreneurs to learn that the IRS has been very helpful in making it easier for limited liability companies ("LLCs") to offer service providers equity stakes that do not come encumbered by negative tax consequences. LLCs offer many potential advantages to business owners. Typically, LLCs are organized to operate as a hybrid entity — offering their owners the shield against liability previously available only to corporations, and the pass-through tax benefits of a partnership available under federal law. The owners of many growing companies, particularly those with high start-up and development costs, may be able to benefit from the ability to flow partnership losses through to their personal federal...