"Stuart O. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

FYI - CA imposes a 1.5% tax on the net taxable income of an
S-Corp. If there is a net loss or the tax would otherwise
be less than $800, than the $800 minimum tax would apply.

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tim[at]timkelly.com (Timothy E. Kelly, Esq.) wrote:

snip
- quote -

And that is why I always tell my clients to discuss the
liability issues with an attorney.

Drew Edmundson, CPA (NC)
e-mail is my first name at nccpa dot com

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"Future Game" <frankie7[at]cox.net> wrote:

- quote -

Perhaps not in state law. But in terms of federal
securities laws you may run into the same or similar
limitations as you'll find with S-corps.

- quote -

Plus that S-corp shareholders are limited to one-to-one,
investment-to-loss writeoffs.

- quote -

Actually in CA I believe the minimum tax is the same for
each at $800 per year, though a gross receipts tax could be
imposed instead if it would be larger.

Stu

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"Harlan Lunsford" <hlunsfordns[at]bellsouth.net> wrote:

- quote -

In my opinion there are definitely advantages to using an
LLC vs. an S-Corp, especially when the entity is holding
leveraged and/or appreciable property such as real estate:

1. There are no statutory limitations to the number of
partners in an LLC;

2. While certain types of entities cannot be S-corp
shareholders (e.g., C-corp, certain trusts, nonresident
aliens, etc.), these are permissible as members in an LLC;

3. LLC members get basis for entity-level debt (S-corp
shareholders only get basis for cash that they actually
lend to the S-corp), which means that LLC members can
generally absorb more losses when such losses are debt
financed. In addition, debt-financed cash distributions
may result in gain to S-corp shareholders that do not
have enough stock basis;

4. In certain states (e.g., CA) S-corps have entity-level
taxes that are often greater than any state-imposed LLC
taxes or fees;

5. In the absence of special provisions under subchapter S,
S-corps are still subject to corporate provisions of
subchapter C. Accordingly, S-corps can produce
entity-level tax consequences under certain circumstances
[e.g., distributions of appreciated property under
sec. 311(b)];

6. LLC's are generally more flexible than S-corps. For
example, P&L can be specially allocated in an LLC while
S-corps must generally allocate P&L prorata in order to
avoid having a second class of stock;

7. If an LLC makes a Sec. 754 election and a member sells or
exchanges their interest, the LLC can generally step up
the basis of its appreciated property with respect to the
transferee member's share of such property, while an
S-corp cannot.

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"Stuart O. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

I am one of those idiot lawyers who advises on entity
formation. Although I am apparently not as qualified as a
CPA or EA to offer an opinion, I do believe if you are
telling your clients a single member LLC has any kind of
protection from personal creditors, you are not keeping up
with the current case law (the liability shield afforded to
members is still intact). The first major breach has
occurred in Colorado, in BK court, where a SMLLC was easily
pierced by the BK trustee because there were no other
members to object to the trustee as a new transferee. Co's
LLC statutes are nearly identical to California. The LLC
member, who was personally in BK (the LLC was not) argued
the trustee was limited to a charging order only. The court
disagreed, finding instead all of the member's interest had
been aquired by the trustee as personal property. See In re
Ashley Albright (BK CT CO) 2003 Bankr. LEXIS 291.

Timothy E Kelly, Esq.
Certified Specialist, Taxation Law
State Bar of California, Board of Legal Specialization

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I always thought maintaining an LLC was simpler than
maintaining a corporation -no annual meeting, no minutes
required. I assume these things are required of an S corp,
including one having only one shareholder. Also, some
states require more than one director and might require
specified offices to be filled with different persons
serving as officers, which can be a pain, particularly when
there is only one shareholder. Obtaining an opinion from
counsel that an LLC is properly formed and maintained seems
simpler and possibly cheaper than obtaining an opinion from
counsel that a corporation has been properly set up and
maintained.

Depending on the state and level of income (or gross
receipts), the franchise tax for an LLC might be more or
less than for a corporation under similar circumstances.
For me, paying a bit more in CA franchise tax for my LLC is
worth it considering the simplicity in maintaining the LLC
as compared with maintaining a corporation - failure to
properly maintain might just botch the limitation of
liability.

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"Gene Utterback" <eagent[at]alliancetax.com> wrote:

- quote -


Stu

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Harlan Lunsford wrote:

- quote -

the various restrictions on who can own S corporation stock.

- quote -

to use the K-1 to do so. In an S corporation, I have to get
bonuses paid and to "adjust" the income allocation--and then
hope the IRS agrees that salary is reasonable for this
purpose (including reasonably high enough <grin> ).

- quote -

a tax free incorporation provision in the IRC, there's no
tax free disincorporation provision. So if the two owners
discover they can't stand each other, there's a problem if
the entity holds any appreciated assets and they just want
to "split up" and each go his/her own way if you've
incorporated. That can be especially problematical if the
IRS can show there is corporate level goodwill involved. In
a partnership context (which is what an LLC would generally
elect to be taxed as), there are fewer problems.

- quote -

there would always be some risk a court might view your
facts as distinguishable or, at a higher risk, that the
agent might think that and you end up with having to deal
with the issue and incur expenses until someone higher up
gives up on it at the IRS.

- quote -

to unwind the partnership from a tax perspective.

- quote -

depend on having paid a "reasonable" salary. Note that, as
I've been on the record here saying before, I have doubts
about a court sustaining that position if asked, but you
will hear it argued.

--
Ed Zollars, CPA
Phoenix, Arizona

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"Harlan Lunsford" <hlunsfordns[at]bellsouth.net> wrote:

- quote -

Generally, I strongly consider and usually recommend LLCs
under the following circumstances:

1 - one owner business, just starting, expecting large
losses, and wants liability protection.
2 - multiple owner business, wants flexibility in
distributing profits to owners disproportionately
3 - single or multiple owners where owners REFUSE to go on
payroll
4 - when appreciating assets are involved

Note - I haven't recommended a straight partnership since I
heard about LLCs.

Gene E. Utterback, EA

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Harlan Lunsford <hlunsfordns[at]bellsouth.net> wrote:

- quote -

In my area the attorneys charge more for LLCs :/

I have recommended LLCs in certain instances. For example
they come in handy if the client wants a separate entity for
liability purposes but I think a proprietorship or tax
ignored subsidiary is needed.

They also work well where a partnership would be the best
answer.

Drew Edmundson, CPA (NC)
e-mail is my first name at nccpa dot com

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Harlan Lunsford <hlunsfordns[at]bellsouth.net> wrote:

- quote -

We recommend them when a) disqualified shareholders; b) real
estate or c) rare other causes are involved. Otherwise, we
aren't very thrilled. Most of our clients don't want the
flexibility which is the hallmark of an LLC.

--
bc

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Harlan Lunsford <hlunsfordns[at]bellsouth.net> wrote:

- quote -

Because when it comes to recommending the type of business
entity to use, lawyers are idiots.

I suspect it's a little like the nerd who wants the fastest
computer with the biggest hard drive, even though it really
won't make any difference to him from a practical
standpoint.

- quote -

S corps do have non-tax restrictions that LLC's don't. In
the tax arena I believe the shareholders of an S corp are
limited to in deductions they may take to the amount of
their basis. I don't think that's the rule for LLC's.

For example there are some public LLC's out there now, where
someone can buy a share on the stock exchange, but share in
any tax benefits that are supposed to accrue to the owners,
perhaps similar to an REIT. Can't do that with an S corp.

- quote -

Personally I tell them to ask their CPA or EA which is best
for them. Here in California there is an $800 minimum tax
on corporations of all types, including S corps. An LLC
will pay at least the same and perhaps more.

- quote -

LLC's were set up because a lot of people liked limited
partnerships better than S corps, but didn't like having
anyone with personal liability. The LLC is supposed to do
that.

- quote -

Actually they're a bit more work if done properly. The few
times they've been recommended, I've charged the same as I
do for corporations. I don't know what anybody else does,
though.

Stu

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These have been around for quite a spell now, and I note
that lawyers are still gung ho about them.

Why?

I mean, is there any real advantage to them over an S corp?

Have you ever recommended one as a better alternate to
either a partnership, C or S corp? And why?

Maybe I slept through that part, well, those parts of those
seminars when the advantages were discussed.

Or are that less work to form and lawyers still charge as much?

Cheer$,
Harlan Lunsford, EA in LA

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