A current client of mine e-mailed me a link from a LegalZoom web page stating that S corporations are better than LLCs for statutory asset protection purposes. The LegalZoom web page is totally wrong. It is based on the belief that S corporation is a legal term. It’s not. LLCs are business entities. S corporations are tax entities.
It amazes me that LegalZoom could be so stupid as to refer to LLCs as “limited liability corporations.”
The link below illustrates the dangers of forming entities through LegalZoom. One of these days, LegalZoom is going to face a huge lawsuit because of advice like the advice under the link below.
Here’s the link and the client quote: “I found this other link that makes it look like s-corporations are better for liability reasons (not sure about this, only asking the question)?”
Every LLC formation lawyer should have at least a basic understanding of the federal and state taxation of LLCs and their members. The IRS has just issued a new publication, designated Publication 3402, entitled “Taxation of limited liability companies.” There are a number of key LLC federal tax issues that this publication does not address in any detail—e.g., how to determine whether the Self-Employment Tax applies to members of multi-member LLCs taxable as partnerships. However, it is still a very useful—and, of course—authoritative—overview of its subject matters—for example, with respect to the tricky issues concerning LLC tax IDs (“employer identification numbers”).
Here is the link to Publication 3402:
Are any of your LLC or estate planning clients moving from your home state to another state and do they want to avoid taxes in one or the other state? If so, you may find the new Lou Vlahos post under the following link useful. Lou’s post is based on New York law, but I believe it will be useful to you in interpreting your state’s law even if your state is not New York.
Here’s the link:
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.
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.
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:
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:
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 firstname.lastname@example.org and by phone at (603) 856-7172.
For Mr. Cunningham’s bio, please click here.
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
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).)
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.