Par. 3. A new Sec. 1.1402(a)-18 is added to read as follows:
(a) In general. Except as otherwise provided in section 1402(a), an individual's net earnings from self-employment include the individual's distributive share (whether or not distributed) of income or loss from any trade or business carried on by a limited liability company (LLC) of which the individual is a member.
(b) Certain members treated as limited partners. Solely for purposes of section 1402(a)(13), a member of an LLC will be treated as a limited partner only if--
(1) The member is not a manager of the LLC, and
(2) The entity could have been formed as a limited partnership rather than an LLC in the same jurisdiction, and the member could have qualified as a limited partner in that limited partnership under applicable law.
(c) Definitions--(1) Limited liability company. Solely for purposes of this section, LLC means an organization that--
(i) Is formed under a law that allows the limitation of the liability of all members for the organization's debts and other obligations within the meaning of Sec. 301.7701-2(d), and
(ii) Is classified as a partnership for Federal tax purposes.
(2) Member. Solely for purposes of this section, member means any person who owns an interest in the LLC.
(3) Manager. Solely for purposes of this section, manager means a person who, alone or together with others, is vested with the continuing exclusive authority to make the management decisions necessary to conduct the business for which the LLC was formed. Generally, an LLC statute may permit the LLC to choose management by one or more managers (whether or not members) or by all of the members. If there are no elected or designated managers (as so defined) of the LLC, each member will be treated as a manager for purposes of this section.
(d) Effective date. This section is effective beginning with the member's first taxable year beginning on or after [INSERT DATE THIS SECTION IS PUBLISHED AS A FINAL REGULATION IN THE FEDERAL REGISTER].