zzcooper123 wrote:LLC's don't have General or Limited partners, only members. Now you might have a managing member with slightly more liability. Or a tax member.
Correct. From a legal point-of-view, LLCs have members. Managing members are actively involved in the management of the business. Otherwise, the member may hire a professional management.
However, from a tax point-of-view, an LLC can be treated in flexible ways.
Even though the member(s) have the ability to make elections, the IRS applies defaults based on the particular fact pattern.
- A single member LLC is treated by default as a disregarded entity ("disregarded as separate from its owner") for tax purposes- Schedule C.
However, the single member LLC can elect to be treated as a corporation - Form 8832.
- A multiple member LLC is treated by default as a partnership for tax purposes - K-1.
However, the multiple member LLC can elect to be treated as a corporation - Form 8832.
- I understand certain LLCs which elect to be treated as a corporation can make a further election to be treated as an S-Corporation - Form 2553.
It appears the family business referred to by the OP has already chose the partnership or S-Corp taxation path since the business is generating K-1s to the wife. (S-Corporations and partnerships would generate K-1s annually for each pass through owner).
The legal entity form and the taxation treatment are different animals.
In the eyes of the IRS, the legal members of the LLC (in this case) are treated as "partners" (partnership) or "pass through shareholders" (S-Corp.). http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Limited-Liability-Company-%28LLC%29