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CANADIAN TAX TREATMENT OF US LLCS

If your LLC clients do business in Canada, you should read the article cited below from Tax Notes concerning Delaware and Florida LLPs and LLLPs.

Canada Classifies Delaware and Florida LLPs and LLLPs as Corporations

By Ryan Finley

Limited liability partnerships and limited liability limited partnerships (LLLPs) organized under the laws of Delaware and Florida will be taxable as corporations for Canadian income tax purposes, according to an announcement by the Canada Revenue Agency.

The CRA announced its decision on the tax classification of LLPs and LLLPs at a May 26 meeting of the International Fiscal Association in Montreal. The agency announced last year that it was examining the tax classification of Florida LLPs and LLLPs and that it was leaning toward corporation classification. The announcement did not specify whether similar entities from other U.S. states will receive the same treatment.

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NH TAX LAW CHANGES

For LLC lawyers interested in New Hampshire tax, here is information from Tax Analysts about recent New Hampshire tax technical changes:

New Hampshire Makes Technical Corrections to Various Tax Laws

Dated May 19, 2016 

Citations: HB 1289; Chapter 85

Summary by Tax Analysts New Hampshire HB 1289, signed into law as Chapter 85, makes technical corrections to tax provisions on rulemaking authority and reporting and payment dates, removes a requirement for witnessed signatures on declaration of consideration reports under the real estate transfer tax, and eliminates the division of automated information systems.

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THE BROADWAY TAX BREAK AND LLCS

To be honest, the story under the link below doesn’t really have much to do with LLCs.   However, as chance would have it, I happen to represent a four-member Delaware LLC, taxable as a partnership, that has invested a few tens of thousands of dollars in Hamilton and stands to make millions from its investment.

My wife has told me to insist to my Hamilton clients that they give me some free Hamilton tickets (or at least one such ticket—for her, of course).  I won’t kid myself:  I know they won’t be giving me tickets—not even one.  But since I’m fond of these clients, I’m hoping nevertheless that they’ll get the benefit of the “live theatre” tax break described in the above story.

Here’s the link:

http://taxprof.typepad.com/taxprof_blog/2016/06/the-story-of-tonight-with-billion-dollar-hamilton-poised-to-sweep-tony-awards-broadway-pushes-for-ta.html

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NEW POST ABOUT PARTNERSHIP TAXATION

The great majority of multi-member LLCs are taxable as partnerships (though many, for Social Security Tax avoidance, ought to be taxable as S corporations).   All LLC formation lawyers ought to have at least a basic understanding of partnership taxation.  A major advantage of partnership taxation over other major federal tax regimens for multi-owner businesses (i.e., Subchapters C and S) is that it permits partners to allocate profits and losses among the partners by contract; they are not bound, for example, to allocations proportionate to capital contributions.  A new post by Lou Vlahos of the Farrell Fritz law firm addresses a somewhat common special-allocation issue involving a partner’s “bad boy guarantee.”    Here’s the link:

http://www.taxlawforchb.com/2016/04/bad-boy-guarantees-redux/?utm_source=Tax+Law+for+the+Closely-Held+Business&utm_campaign=1d1f67b5a4-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_4d5d267118-1d1f67b5a4-73367009

 

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JOHN CUNNINGHAM’S LLC CONSULTING SERVICES

John Cunningham provides consulting services on LLC legal, tax and practice issues by phone and e-mail to LLC lawyers forming LLCs, converting non-LLC entities to LLCs, and representing clients involved in internal LLC disputes. His hourly rate for these services is $400. When lawyers call him to obtain forms for particular LLC formations, the process usually takes about 15 minutes and the fee is $100 payable by check or credit card.

You can contact Mr. Cunningham for these services by e-mail at lawjmc@comcast.net and by phone at (603) 856-7172.

For Mr. Cunningham’s bio, please click here.

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NEW ARTICLE ON MULTI-STATE TAXATION OF LLCS AND LLPS

If LLCs that you have formed or that you represent have multistate operations, you may be interested in the following summary of an article that appeared recently:

4/25/2016 St. & Loc. Taxes Weekly Art. 9
State & Local Taxes Weekly
Copyright (c) 2016 Thomson Reuters/Tax & Accounting
April 25, 2016
Vol.27
AN UPDATE ON THE STATE TAX TREATMENT OF LLCS AND LLPS.

The owners of multistate businesses must consider a multitude of factors when deciding how to structure their business ventures, and state taxation cannot be overlooked. The accompanying charts in this article can assist in that evaluation for limited liability companies (LLCs) and limited liability partnerships (LLPs). In recent years, LLCs and, to a lesser extent, LLPs have become the popular choice for structuring or re-structuring multistate business entities. According to eye-opening IRS statistics issued in December 2015, approximately two-thirds of all Subchapter K entities are now domestic (U.S.) LLCs, surpassing all other entities types for 12 consecutive years. The charts in this article set out the various differences in the tax treatment of LLCs and LLPs across the 50 states and the District of Columbia. They discuss state tax considerations, such as conformity with the federal income tax classification rules, entity-level taxes, and potential entity-level withholding or composite return requirements. In addition, the authors hope that the endnotes will also be useful, especially those listing the growing number of states that exempt qualified investment partnerships (QIPs) or their nonresident partners from state income tax and nonresident partner withholding. (B.P. Ely and W.T. Thistle, II, 26 Journal of Multistate Taxation and Incentives, No. 2, 14 (May 2016).)

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NEW ARTICLE IN TAX NOTES ABOUT NEW PARTNERSHIP AUDIT RULES

Accountants who handle LLC formations must decide whether their LLC forms need to be changed to reflect the U.S. Treasury Department’s new regulations concerning partnership audits.  Below are title and the initial sentences in a new article in the latest Tax Notes that provides guidance on this issue:

Getting the Partnership Audit Rules Up and Running

By Donald B. Susswein and Ryan P. McCormick

Susswein and McCormick, who were involved in developing some of the concepts underlying the new partnership audit rules, describe the major procedural issues that the IRS will likely face in implementing section 6226, which allows audited partnerships to pass through the tax liability for audit adjustments to their direct and indirect partners. They suggest several procedural steps and regulatory rules that may help the IRS minimize its administrative burden, while ensuring that the new rules are implemented consistently with the underlying intent of Congress. The views expressed are the authors’ and not necessarily those of their organizations.

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OFF-SHORE TAX HAVENS

I always feel hesitant to recommend to LLC asset protection clients the use of off-short LLCs (e.g., Nevis LLCs) and other off-shore entities.  The new Minnesota legislative described under the following link is one reason why:

Minnesota Joins Trend of States Proposing Tax Haven Legislation

By Maria Koklanaris

Minnesota will become the latest state this legislative season to consider tax haven legislation to address the taxation of foreign-source income and will do so with a bill that includes a list of tax haven countries that must be accounted for when companies file combined reports.

State Sen. John Marty (DFL) on March 29 introduced SF 3318 , which lists the U.S. Virgin Islands and 45 foreign countries as tax havens. The bill would apply to any U.S. corporation that “is incorporated in a tax haven; that reports 20 percent or more of its gross income derived from sources in one or more tax havens; or that has the average of its property, payroll, and sales factors . . . within the 50 states of the United States and the District of Columbia of 20 percent or more.”

The bill also provides that a country would no longer be on the tax haven list after the first tax year in which it either enters into a tax treaty with the United States or imposes a tax rate of at least 10 percent on a tax base equal to at least 90 percent of the tax base that applies to corporations under the Internal Revenue Code.

With SF 3318, Minnesota’s first tax haven bill since 2013, the state becomes part of a trend of states not only introducing tax haven bills but increasingly doing so in the most controversial way — by specifying what opponents call a “blacklist” of tax haven countries.

 

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SMALL BUSINESS RETIREMENT PLANS

If you help clients form LLCs for use in their businesses, you may sometimes wish to advise them that they should be thinking about retirement plans for the members of their LLCs and that they can learn the basics concerning these plans, as outlined by the IRS, by clicking on this link:

https://www.irs.gov/pub/irs-pdf/p3998.pdf

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US SMLLCS WITH FOREIGN OWNERS

If you ever have occasion to form single-member LLCs (or, for that matter, multi-member LLCs) whose members (or one or more of them) are citizens of a foreign country,  you should read the post under this link:  http://www.lexology.com/library/detail.aspx?g=9c94e94a-8960-49f3-9ec7-c539fc29c48a&l=7R1JVQ7.

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