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Discussion:Reorg from LLC to Corporation
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Discussion Forum Index --> Advanced Tax Questions --> Reorg from LLC to Corporation
Discussion Forum Index --> Tax Questions --> Reorg from LLC to Corporation
Gordo (talk|edits) said:
| 11 December 2007
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| My client is currently a LLC with two participants and has filed taxes for the last two years. He wanted to explore doing a reorg into a corp and then filing for S-Status with the hopes of reducing some of the SE tax. Has anyone looked into this and the tax consequences? Just starting my research...any thoughts?
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JR1 (talk|edits) said:
| December 11, 2007
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| Sec. 351 is tax free inc'ing of partnerships. But it's unnecessary. Read up on LLC thinking, by restructuring the LLC with both limited and general interests you can segregate the SE tax. Indeed, since there are NO regs on this, you can do whatever you're comfortable with anyway. Most of do not assess SE on the entire LLC profits for all our clients.
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DerekCPA (talk|edits) said:
| 11 December 2007
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| You could "check the box" and elect S Status while remaining an LLC
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JR1 (talk|edits) said:
| December 11, 2007
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| In some states, that might be the best move anyway if you for sure would rather be a corp, since taxes can vary a lot. But again, purely for SE tax, I would NOT do what you're suggesting. There's no need, and who knows what S corps will endure on this front shortly anyway?
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DerekCPA (talk|edits) said:
| 11 December 2007
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| You raise a good point JR. I think before taking the plunge into S Status , I would need a lot more facts than we currently have. If Rangels " Mother of All Tax Increases" should somehow pass, you could bust the S rather easily.
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Gordo (talk|edits) said:
| 11 December 2007
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| I already limit the SE tax to the managing partner as the other partner is passive and does not participate. I also explained to the client that there is a chance that earnings from a S-Corp could be subject to SE in the future.
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JR1 (talk|edits) said:
| December 11, 2007
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| There you go, then. You can also split the managing member's interest and dodge SE on that legally as well. Again, there are NO regs in play on this.
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Gordo (talk|edits) said:
| 11 December 2007
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| Ok...how does one split the managings members interest?
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JR1 (talk|edits) said:
| December 11, 2007
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| Let me see if I can find that, think I bookmarked it....
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JR1 (talk|edits) said:
| December 11, 2007
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| Well, rats, didn't save it. Do a search. Part of what you're looking for will be using the word bifurcate and LLC, there's an article or speech from an ex-IRS director in fact. But read up on the LLC regs or lack thereof. It's truly a wide open landscape out there, and we are free to assess SE taxes on profits or not, or anywhere in between depending on client's willingness to take the risk, your philosophy, what's fair, etc. LLC profits are not yet required to be SE assessed. IRS treats the LLC AS a partnership, but it is NOT a partnerhip. It is an LLC, think of it as taxed as a partnership, but Congress specifically prohibited IRS from creating any regs on the SE issue as it relates to LLC's.
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LH2004 (talk|edits) said:
| 12 December 2007
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| "Congress specifically prohibited IRS from creating any regs on the SE issue as it relates to LLC's."
Umm...when was that?
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LH2004 (talk|edits) said:
| 12 December 2007
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| Let me be clearer: Congress formerly temporarily put the kibosh on any regulations on the employment tax exception for limited partners. It was NOT specific to LLCs. An LLC is not a partnership for state law purposes, but uses of the term "partnership" in the tax laws do include them; they're not just taxed as if they were.
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