Discussion:LLC taxed as S corp questions

It feels so strange. Does anyone out there do one of these? Anything tricky to be aware of? A staffer at the FTB told me that, as an S, the entity will pay the 1.5% S tax in CA, but the LLC will NOT be subject to the LLC Fee (the legality of which is being questioned in court right now).

Finally, why not simply be an S? Are the only benefits not being an S avoiding the corporate formalities?

For line D on F1120s you should put the date the LLC was formed.

Currently in CA the LLC election SCORP status will only need to pay the SCORP taxes and not the LLC fee. Also you should know that when you file the F100S for the first time, leave the CA corp number blank and mail the return in. The FTB will assign you a CA corp number.

The biggest benefit of being a SCORP is the ability to avoid FICA taxes and corporate income tax. I'n not sure about the record keeping requirments (BOD minutes, etc) for an electing LLC. Seems like it would be a state law issue.

I understand some California attorneys are recommending LLCs rather than corporations from a legal standpoint for liability protection reasons. In a Chapter 7 bankruptcy proceeding, the trustee takes control of all of the debtor's assets, including the stock of corporations, and stands in the shoes of the stockholder. So the trustee can dispose of a wholly-owned corporation's assets to satisfy creditors' claims. However, in a "charging order" state, the trustee only gets control of the income from a partnership or LLC (that's a charging order), and cannot get direct control of the LLC's assets. So your attorney may advise you to use an LLC rather than a corporation.

You must get competent legal as well as tax advice to make these decisions.

Good to hear from you. I've been struggling with the same situation. LLC taxed as S corp, but what to do about the stock, etc. thamks for your note. I believe it's still an LLC, not an S corp. For accounting purposes, I guess you would have to use S Corp general ledger accounts, yes???

And of course, throughout, for "stockholders" read "members" and enter data accordingly.

While I have no idea where else it would go, it seems a little weird that capital contributions which would be part of the ending capital accounts be placed onto the R/E line on Scheule L. It certainly is not PIC or $$ paid for stock - so where would you (or anyone else as KatieJ asked) put the capital accounts on Schedule L? Would be sort of "shoehorning" - yes?

So, is this the way it is? Members are put on payroll?

Who and why do they come up with this stuff anyway? If you want to be taxed as an S, be an S . . .

To clarify, shareholder-employees are on payroll. If the shareholder doesn't work in the SCorp they only get distributions.

The whole deal is a matter of forcing a square peg (LLC) into a round hole (S corp). Or vice versa. I'm inclined to agree with you -- if you want to be an S, just be an S. But there may be legal reasons for preferring the LLC structure.

As for putting members' equity on the "retained earnings" line -- I'd just cross out "retained earnings" and write in "members' equity" and go on my merry way <G> ....

One of the major benefits of a LLC is to be able to assign different classes of memberships, and to allocate profits based on the operating agreement, and not on a percentage of ownership. Question 1: when electing S corp taxing status, does the LLC lose the ability to allocate profits based on the operating agreement Question 2: when electing S Corp taxing status, does the LLC lose the ability to recognize different classes of memberships.

What about the passive income limitations that S Corps are subject to? Can the LLC have the passive income and still take the Sub S election?

1. LLC's have members, not shareholders. 2. S Corps are limited to 100 shareholders. May an LLC that is TAXED as an S Corp have more than 100 Members ?? Your answer is no, you can't have more than 100 members ??

The same tax implications are there that would be there if the entity were a partnership or a C corporation or an S corporation because an LLC is treated - for tax purposes - as if it were...whatever you've chosen it to be, by affirmative election or by default.

When your horse is dead, it is prudent to dismount.

Echoing JR: Read Reg. 301.7701-3(c)(1)(iv)(C). An eligible entity that elects S corporation treatment is considered to have elected to be taxed as an association (corporation), and that election remains in place until the entity elects to be taxed as other than an association. So if the S election terminates, for whatever reason, the entity remains a corporation for tax purposes until it makes an election to be taxed as a partnership or disregarded. Which means it is a C corp.

Also, pursuant to Reg. 7701-3(c)(1)(iv), if the entity elected association/S status effective on the date of its formation, it can change its election to partnership status at any time. However, if it was taxed as a partnership for some time before it made the association/S election, it must wait 60 months to go back to partnership status.

I think I am right on that.

Danny said his client had made the corporation/S election. Therefore that entity is taxed as a corporation until it makes a positive election to be taxed as a partnership. Again, read the regs. They explain everything.

Whether an LLC ceases to exist as an LLC if it fails to file required documents depends on the laws of the state where it is organized. In California, for example, an LLC that fails to file returns or pay the minimum tax and fee is suspended, not dissolved. It continues to exist as an entity and may enter into contracts; however, like a suspended corporation, any contract entered into during a period of suspension is voidable at the instance of any party other than the LLC.

Discussion:Multi member llc taxed as corporation