Tax Treatment of Equity Compensation for LLC Members

Structuring Equity-Based Interests for Optimal Tax Outcomes

Recording of a 90-minute premium CLE/CPE webinar with Q&A

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Conducted on Wednesday, September 1, 2010

Recorded event now available

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Course Materials

This CLE course will provide tax advisors with an overview of the types of equity interests an LLC can issue and discuss the resulting tax impact for the owner, existing members and the entity. The panel will outline best practices for structuring equity incentive arrangements to optimize tax outcomes.


LLCs can provide equity incentives to members by granting capital interests, profit interests or options to acquire such interests. Granting of equity interests is a contractual matter that may contain restrictions such as vesting and service requirements, performance standards and forfeiture.

The rules governing the taxation of equity interests are uncertain and complex. Making the optimal choice among the alternatives involves balancing the tax impact on existing members, prospective members, and the entity itself.

Granting interests at less than fair market value can give rise to taxation on the interest at the time it is granted. Having an outside professional valuation creates a defensible value on which to base the future benefits subject to taxation.

Listen as our authoritative panel of tax specialists discusses the alternatives for LLCs to grant equity compensation to its members, the tax ramifications to grantees, existing members and the LLC entity, and best practices for structuring equity compensation plans.



  1. Tax consequences of capital interests
  2. Tax consequences of profits interests
  3. Valuation issues
  4. Impact of proposed carried interest legislation


The panel will review these and other key questions:

  • What are the differences between profits interests and capital interests?
  • What is the difference between structuring profits interests where liquidation is by capital accounts and where liquidation is in accordance with distributions?
  • How can profits interests be structured so that profits interests recipients are treated as close as possible to holders of capital interests?
  • Is a section 83(b) election needed?
  • Should profits interest recipients be treated as partners and not employees? What are the tax implications?
  • What effect could the pending carried interest legislation have on equity compensation for LLC members and what steps can members take to lock in favorable tax treatment under current law?


Christian M. McBurney
Christian M. McBurney

Nixon Peabody

Mr. McBurney practice area is federal income taxation with particular emphasis on tax planning for private...  |  Read More

Immerman, Andrew
L. Andrew Immerman

Alston & Bird

Mr. Immerman concentrates on federal income tax matters, including domestic and international tax planning and...  |  Read More

Daniel N. Janich
Daniel N. Janich

Greensfelder, Hemker & Gale

He counsels corporations, executives and business professionals on employee benefit plan design and administration,...  |  Read More

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