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TREAS/IRS RIN: 1545-BM87 Publication ID: Fall 2016 
Title: Self-Employment Tax Treatment of Partners in a Partnership that Owns a Disregarded Entity (Temporary) 
Abstract:

Section 301.7701-2(c)(2)(i) of the regulations states that, except as otherwise provided, a business entity that has a single owner and is not a corporation under 301.7701-2(b) is disregarded as an entity separate from its owner (a disregarded entity). However, the regulations also treat a disregarded entity as a corporation for purposes of taxes imposed under subtitle C (employment taxes). This exception to the treatment of disregarded entities does not apply to taxes imposed under subtitle A, including self-employment taxes, and current regulations provide that the owner of a disregarded entity who is treated as a sole proprietor for income tax purposes remains subject to self-employment taxes. 

The current regulations do not explicitly address situations in which the owner of a disregarded entity is a partnership. Some taxpayers are reading the current regulations, in such situations, to permit the treatment of the individual partners in the partnership that owns the disregarded entity as employees of the disregarded entity.

The regulations will address these issues by clarifying that the rule that a disregarded entity is treated as a corporation for employment tax purposes does not alter the self-employment tax treatment of any individuals who are partners in the partnership that owns a disregarded entity. The partners are not treated as employees of the disregarded entity, but rather are subject to the same self-employment tax rules as partners in a partnership that does not own a disregarded entity.

 
Agency: Department of the Treasury(TREAS)  Priority: Substantive, Nonsignificant 
RIN Status: Previously published in the Unified Agenda Agenda Stage of Rulemaking: Final Rule Stage 
Major: No  Unfunded Mandates: No 
EO 13771 Designation: uncollected 
CFR Citation: 26 CFR 301.7701-2   
Legal Authority: 26 U.S.C. 7805   
Legal Deadline:  None
Timetable:
Action Date FR Cite
Final and Temporary Rule  05/04/2016  81 FR 26693   
Final and Temporary Rule Effective  05/04/2016 
Final Action  12/00/2016 
Additional Information: REG-114307-15 (Temp) Drafting attorney: Andrew Holubeck (202) 317-4774 Reviewing attorney: Lynne Camillo (202) 317-4774 Treasury attorney: Robert Neis (202) 622-5293 CC:TEGE
Regulatory Flexibility Analysis Required: No  Government Levels Affected: None 
Small Entities Affected: No  Federalism: No 
Included in the Regulatory Plan: No 
RIN Data Printed in the FR: No 
Related RINs: Related to 1545-BM77 
Agency Contact:
Andrew K. Holubeck
Attorney-Advisor
Department of the Treasury
Internal Revenue Service
1111 Constitution Avenue NW., Room 4311,
Washington, DC 20224
Phone:202 317-4774
Fax:855 592-9845
Email: andrew.k.holubeck@irscounsel.treas.gov