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For two member LLC, want only part of business income taxed as SE income. (taxed part will be guaranteed payments) How to show on 1065
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Income bifurcation in an LLC is an aggressive tax strategy which may have some merits, but I would approach it carefully. Mechanically you would set up separate K-1s for the limited partner interests and for the general partner interests. As a limited partner you would not be subject to SE tax, as a general partner you would.
Here is an IRS PLR which is on point - they concluded in this case that the partner did not have a limited partner component ans were fully subject to SE tax on all income. However, they reference all the major case law on the subject:
https://www.irs.gov/pub/irs-wd/201640014.pdf
Here is another article that suggests the mechanisms and tests based on the 1997 proposed regulations - never finalized - which describes when an LLC interest could be treated as a limited partner interest.
https://www.bauer.uh.edu/jmeade/articles/CPA%20Journal%20June_2006.pdf
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