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NH TAXES

For those of you who follow New Hampshire tax developments, here is an excellent current overview by Tax Notes concerning current negotiations between New Hampshire’s governor and the New Hampshire Legislature concerning New Hampshire business taxation as applicable to LLCs and other entities.

http://www.taxnotes.com/state-tax-today/budgets/new-hampshire-governors-budget-compromise-includes-corporate-tax-breaks/2015/07/24/14943551

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DISCOUNTS

Under the link below is a brief but interesting current blog post about the history of discounts and about current alleged threats to their continued validity.  The first post in the blog is the relevant one, but you may also find that the older posts are also of interest to you.

Here’s the link:

http://www.taxlawforchb.com/?utm_source=Tax+Law+for+the+Closely-Held+Business&utm_campaign=20869b4beb-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_4d5d267118-20869b4beb-73367009

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ARTICLE RE PROFITS INTERESTS

Here is a cite, which I received from a WestLaw Alert, to a new law journal article on some key issues in structuring the federal tax provisions in the operating agreements of multi-member LLCs taxable as partnerships:

Polyatskiy, STRUCTURING LLC WITH CAPITAL INTEREST, PROFITS INTEREST, NCO, COMPENSATORY OPTION, AND CONVERTIBLE DEBT AND EQUITY, 27 DCBA Brief 32 (July, 2015).

I haven’t been able to find a link to the article, but if I do, I’ll post it.

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RISKS WHERE LLC IS IRA-FUNDED

The blog post under the link below addresses the IRA conflict-of-interest issue when an IRA-funded LLC pays compensation to the IRA owner.   The risk is great and the penalty can be “draconian.”

Here’s the link:

http://www.lexology.com/library/detail.aspx?g=ffe62cb0-7e4d-497e-ba71-2c61af139229&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2015-06-30&utm_term=

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REMINDER! SEMINAR TOMORROW

Dear friends and colleagues

A REMINDER:

Tomorrow, Tuesday, July 7, 2015, from 9 AM to noon at the Manchester Chamber of Commerce, located at 54 Hanover Street, Manchester, NH, I will present a free, three-CLE-credit seminar for New Hampshire accountants on how to protect LLC members from:

  • The I&D Tax; and
  • The Self-Employment Tax.

Seating for the seminar is still available.  For further information about the seminar and to enroll in it, please call my colleague Amanda Nelson at 842-5490 or email her at anelson_law@yahoo.com.

Among the key issues in the seminar are these:

  • Defending clients in audits.  If the DRA assesses the I&D Tax or the Social Security and Medicate taxes against a client of yours who is a New Hampshire member of a single-member or multi-member LLC on your client’s share of LLC income, how can you use the 2012 decision of the New Hampshire Supreme Court in the Lyme Timber case to defend your client?
  • Helping lawyers draft LLC operating agreements.  What should you tell lawyers with whom you work about how to draft operating agreement provisions that will protect your clients from I&D Tax and Social Security and Medicare Taxes?

Before and at the seminar, I will distribute extensive sentence outlines to seminar attendees.

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PUBLICLY TRADED PARTNERSHIPS

Even if you’re unlikely to ever have any involvement with an LLC whose interests are publicly traded, you should have at least a basic understanding about them and the tax rules that govern publicly traded LLCs taxable as partnerships.  Here is a good, brief article about pending U.S. Treasury regulations governing publicly traded partnerships:

http://www.lexology.com/library/detail.aspx?g=0af9fa15-9a54-40ea-ad4d-ae780edfe247&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2015-06-25&utm_term=

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NEW ARTICLE ON CAPITAL ACCOUNTS

The capital account provisions in the operating agreements of LLCs taxable as partnerships are critical both in defining the economic deal among the members and in defending this deal if challenged by the IRS upon audit.  Donald J. Weidner, Dean and Alumni Centennial Professor, Florida State University College of Law, has just published an article in Florida State U. Business. Rev. 1 (Spring 2014), entitled CAPITAL ACCOUNTS IN LLCs AND IN PARTNERSHIPS: POWERFUL DEFAULT RULES AND POTENTIAL TAX SIGNIFICANCE.  It’s an excellent article; I recommend it for anyone who wants to expand their understanding of capital accounts.  Part VI of the article, entitled “Conclusion,” provides a succinct summary of the article’s content.  Here is that conclusion:

VI.  Conclusion

In the financial crisis that started to unfold in 2007, it became widely known that investment bankers, and their lawyers and accountants, had drafted documents for financial instruments so complex as to be beyond comprehension. However impenetrable, language and structures migrated and became widely accepted once they passed muster. Former Federal Reserve Chairman Allan Greenspan quipped that, even with more than 100 economists at his disposal, he could not *29 untangle the agreements or structures behind billions of dollars of collateralized debt obligations. Unfortunately, something similar, although perhaps not quite as extreme, has happened within the more modest arena of LLCs and partnerships. Despite the fact that these are two premier vehicles for small businesses with two or more owners, they are often governed by agreements that are very difficult to understand. Operating and partnership agreements are often drafted by generalists who incorporate standard form language that attempts to validate special allocations of tax benefits that might be made, even if implausible. Although the relevant federal income tax regulations focus heavily on capital accounts, those capital accounts are often misunderstood and can have significant and unintended economic consequences.

My thesis is twofold. First, even apart from federal income tax law, attorneys must have at least a rudimentary understanding of what capital accounts are and are not, as well as any state default rules regulating them. The accounting profession typically is generating individual capital accounts for each owner, even if those accounts are not required either by the owners’ agreement or by law. In the world of small business, often characterized by incomplete or vague agreements and by poor record-keeping, those accounts provide at least some standardized measure of an owner’s net equity in the firm. Second, capital account analysis is a useful analytical device. Walking the standard range of anticipated transactions through a capital accounts analysis can raise with great clarity and precision basic economic decisions that might otherwise be overlooked, particularly decisions regarding the sharing of different kinds of losses among the owners.

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CHECK THE BOX REGULATIONS

As most of you will know, the U.S. Treasury Department Check-the-Box Regulations are the core document in the field of the federal income taxation of LLCs and their members.  I recently taught a three-CLE-credit seminar on these regs for New Hampshire accountants, and I distributed to them an extensive seminar outline.  The outline is too data-rich to send in this e-mail, but if you’d like to look at it, you can do so by clicking on the hyperlink “here” at the end of the fourth paragraph of Section I of a LLC seminars website I maintain.  Here’s the link to the website:  http://www.cunninghamllcseminars.com/.

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REMINDER! FREE THREE-CLE HOUR SEMINAR FOR NEW HAMPSHIRE ACCOUNTANTS ON PROTECTING LLC MEMBERS FROM THE SELF-EMPLOYMENT TAX AND FROM THE I&D TAX

On Tuesday, July 7, 2015, from 9 AM to noon at the Manchester Chamber of Commerce, John Cunningham will present a free, three-CLE-credit seminar for New Hampshire accountants on how to protect LLC members from the Self-Employment Tax and from the I&D Tax. Seating is limited. For further information and to enroll, please email Amanda Nelson at anelson_law@yahoo.com.

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VALUATION DATES OF BUY-OUTS

Peter Mahler’s blog post under the link below deals with valuation dates in court-ordered buy-outs, but many of the principles in the post apply to buy-out provisions in LLC operating agreements.

Here’s the link:  http://www.nybusinessdivorce.com/2015/06/articles/llcs/court-ordered-llc-buy-outs-whats-the-valuation-date/

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