The enactment of the Sec. 199A QBI deduction adds a new consideration to the form of entity analysis because the QBI deduction available to a business owner may vary depending on a business’s entity form. This article discusses the differences in calculating the QBI deduction for S corporations and LLCs in a variety of scenarios.
LLCs and LLPs
Buy/sell agreements allow LLC members to control the transfer of ownership upon the occurrence of certain triggering events, but they must be carefully structured.
A practitioner who is a true trusted business adviser should consider what the business owner wants to achieve when making this decision.
Converting a C corporation to a limited liability company can sometimes be beneficial, but the tax consequences must be planned for.
A timely election allows a married couple in business together to avoid the partnership filing rules.
Depending on how a taxpayer’s ownership is structured, the sale of a partnership interest can have a Sec. 280G impact on partners or members that are C corporations.
A loan from an LLC member to the LLC must be structured carefully to ensure it is respected as bona fide debt.
Lender Management contended that its activities met the test for an active trade or business under guidelines.
Regulations remove basis benefit for an LLC member when circumstances indicate a plan to circumvent or avoid debt payment obligation.
Procedures for concluding the affairs of the LLC should be included in the operating agreement.
A preparer’s improper change of status of income from active to passive is costly for taxpayers.
A responsible person may be subject to the TFRP if it can be shown he or she willfully failed to pay the trust fund taxes due.
Rules regarding gain or loss on liquidation are a major reason for formation as an LLC rather than as a corporation.
Practitioners should be familiar with the cancellation-of-debt rules to ensure that modifications of an LLC's debts are not significant enough to cause the members to recognize income.
This item explores some common issues encountered by foreign taxpayers adopting transparent U.S. LLCs to invest or operate in the United States.
Determining whether each individual member of an LLC materially participates requires assumptions that can pose problems.
An LLC's required year can change for several reasons. A change in the LLC's required year is treated as automatically approved by the IRS.
The IRS Office of Chief Counsel determined that actively working members of an investment management company formed as a limited liability company were not limited partners within the meaning of Sec. 1402(a)(13), and, thus, their net distributive shares of management fee income were subject to self-employment tax.
Under Sec. 704(d), a member's allocable share of loss from a limited liability company (LLC) taxed as a partnership is deductible only to the extent of the member's outside basis in his or her LLC interest at the end of the LLC year. In determining a member's outside basis at year end, adjustments for increases and decreases are made in a specific order according to Regs. Sec. 1.704-1(d)(2).
Many LLCs that are not connected to California other than via investment interests in LLCs that are conducting business in California are unknowingly not complying with California's filing requirements, especially if the California apportioned net income is small or a loss.