A partnership, including a multi-member LLC by default, pays no income tax itself; it files Form 1065 and passes income, losses, and credits to partners on Schedule K-1, taxed whether or not cash is distributed.
Partners generally owe self-employment tax on their share of business income. Since 2018 the partnership itself can be assessed in an audit under the centralized regime unless it elects out.
Partners are taxed on income they may never receive in cash, which surprises passive investors and DAO members. Form 1065.
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