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Your newest client, PBR, LLC, is an architectural firm providing services in the Houston area. The LLC is owned equally by Park, Baines, and Rowe. Park is the LLC member manager who oversees operations for the firm. Baines is an LLC member and the company’s head architect. Rowe is a founding member of the firm who is now retired but serves as a capital investor as needed. For the past 15 years, PBR has been organized as an S corporation. This year they converted the business to a partnership LLC and have engaged your CPA firm for tax advice and tax preparation. PBR would like to continue to treat Park and Baines as employees of the firm and pay each a salary of $200,000 as they did last year when the firm was an S corporation. In addition, the three LLC members have agreed to share profits and losses equally and expect business net ordinary income for the current year to be $300,000. Each will take cash distributions of $40,000. The members assume that they will continue to not be subject to any self-employment taxes on either their share of the profits or their distributions. Required: Write a two-page memo to the three co-owners addressing in detail the issues they have raised above, namely, continuing to treat Park and Baines as employees and the question of self-employment taxes. In your memo, support your answers with all of the following research sources which have been provided in separate pdf files. Explicitly integrate them and refer to them in your memo: • Chief Counsel Advice CCA 201436049 • Revenue Ruling 59-221 • Revenue Ruling 69-184 • Internal Revenue Code Sec. 707 • Internal Revenue Code Sec. 1402 • US Tax Court, Renkemeyer v Commissioner • US District Court, Riether v USA • Chief Counsel Advice CCA 201640014

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