72. Laura Davis is a member in a limited liability company that has historically been profitable but is expecting to generate losses in the near future because of a weak local economy. In addition to the hours she works as an employee of a local business, she currently spends approximately 150 hours per year helping to manage the LLC. Other LLC members each work approximately 175 hours per year in the LLC, and the time Laura and other members spend managing the LLC has remained constant since she joined the company three years ago. Laura’s tax basis and amount at-risk are large compared to her share of projected losses; however, she is concerned that her ability to deduct her share of the projected losses will be limited by the passive activity loss rules.

a. As an LLC member, will Laura’s share of losses be presumed to be passive as they are for limited partners? Why or why not?

[Hint: See §469(h)(2), Garnett v.

Commissioner, 132 T.C. 368 (2009), and Prop. Reg. § 1.469-5(e)(3)(i).]

b. Assuming Laura’s losses are not presumed to be passive, is she devoting sufficient time to the LLC to be considered a material participant? Why or why not?

c. What would you recommend to Laura to help her achieve a more favorable tax outcome?