PROFITS, TAXES, & LLCs (T/G 202) covers the unique characteristics of an LLC under federal law, forming it under state law, the importance of a written operating agreement, the requirement for maintaining a sufficient capital base to meet all business commitments, and the tax forms and balance sheets needed. Also covered:

• How to really establish "limited liability"
• The "like-a-corporation" standard
• Entity classification elections & changes
• For profit & at-risk limitation rules
• Material participation vs. passive activities
• Foreign LLCs: U.S. "effectively connected"

Profits, Taxes, & LLCs
Book: 202

Table of Contents

1.  LLC: A HYBRID ENTITY                        1-1

    Not a Corporation                           1-2
    Where Confusion Arises                      1-3
    S Corporation Features                      1-5
    Partnership Features                        1-7
    Proprietorship Features                     1-9
    Not a Business Trust                        1-10
    Summary of LLC Features                     1-12

2.  FORMING AN LLC                              2-1

    Contact Secretary of State                  2-2
    Your State’s LLC Law                        2-3
    The Essence of Formation                    2-6
    Articles of Organization; Contents          2-7
    Statement of Information                    2-11
    Information Required to be Maintained       2-12
    Operating Agreement:  A “Must”              2-14
    Cash Starvation by Members                  2-16

3.  LIABILITY OF MEMBERS                        3-1

    The Basic Protection Rule                   3-2
    The “Prohibited Distribution” Rule          3-4
    The “Agree to be Obligated” Rule            3-5
    The “Shall Carry Insurance” Rule            3-6
    The “Alter Ego Liability” Rule              3-8
    The “Like-a-Corporation” Standard           3-9
    Retroactive Corrections Preempted           3-11
    Outsourced Management Permitted             3-12
    No Shield for Tortious Conduct              3-14

4.  IRS ELECTION FORM 8832                      4-1

    Apply for EIN First                         4-2
    Other EIN Information                       4-4
    Purpose of Form 8832                        4-5
    Information on the Form                     4-6
    Checking “Form of Entity”                   4-8
    Consent Statement & Signature (s)           4-10
    The 60-Month Rule                           4-11
    Consequences of Change                      4-13
    Foreign Entity “Relevance”                  4-16

5.  TAX FORMS & SCHEDULES                       5-1

    Where on Form 1040?                         5-2
    Schedule K-1: Top 1/3                       5-5
    Distributive Share Items                    5-7
    The Origin of Schedule K-1                  5-9
    The Allure of Form 1065                     5-10
    The Balance Sheets                          5-12
    Capital Accounts Reconciliation             5-14
    Single Member LLCs                          5-16
    Solo S Corporation                          5-17

6.  CALIFORNIA FORM 568                         6-1

    California’s “Tax on Tax”                   6-2
    Overview of Form 568                        6-4
    Page 1, Form 568 Revisited                  6-6
    Single Member LLCs                          6-7
    Analysis: Schedule K (568)                  6-9
    Nonresident Members:  List of               6-11
    Source Determination Rules                  6-13
    Effect on Schedule K-1 (568)                6-14

7.  PARTNERSHIP LLC RULES                       7-1

    Categorizing the 29 Rules                   7-2
    The Anti-Abuse Rule                         7-5
    Economic Substance Rule                     7-6
    Maintaining Capital Accounts                7-9
    Mandatory Allocation of Debt                7-12
    Partnership Accounting Year                 7-14
    Changes in Members’ Interests               7-15
    Basis & Adjustments Thereto                 7-17
    Partnership Basis Accounting                7-19
    Contributions TO Partnership LLC            7-21
    Distributions FROM Partnership LLC          7-22
    Transfer of Partnership Interest            7-24

8.  NOT-FOR-PROFIT RULES                        8-1

    Suspect Patterns                            8-2
    “Not-for-Profit” Defined                    8-4
    “Relevant Factors” Listed                   8-5
    Your Manner & Expertise                     8-6
    Time and Effort Expended                    8-8
    Expectation & Other Successes               8-9
    History of Income & Losses                  8-11
    Occasional Profits & Status                 8-13
    Elements of Personal Pleasure               8-14
    Buying Tax Benefits                         8-15
    Rebutting the Presumption                   8-17

9.  AT-RISK LIMITATIONS                         9-1

    Where on Form 1040?                         9-2
    Introductory Statutory Wording              9-4
    Why Deductions “Per Activity”               9-5
    Meaning of “Amount at Risk”                 9-6
    Finessing of Financing                      9-9
    Example of “Circular” Financing             9-11
    Now to Form 6198                            9-13
    Use Part II:  Simplified Computation        9-14
                        
10. MATERIAL PARTICIPATION                      10-1

    Proprietorship LLCs                         10-2
    Partnership LLCs                            10-4
    Sources of Income or Loss                   10-5
    Source 1:  Trade or Business                10-7
    Material Participaton: Test 1               10-8
    Hypothetical Allocation Example             10-10
    Synopsis of Tests 2 Through 7               10-12
    Source 2:  Rental Real Estate               10-13
    Real Estate  “Active Participation”         10-15

11. PASSIVE ACTIVITY LOSSES                     11-1

    Meaning of “Passive Activity”               11-2
    Commentary on Rental Activities             11-4
    Passive Activity Gross Income               11-5
    Passive Activity Deductions                 11-7
    Special $25,000 Loss Allowance              11-8
    Form 8582:  Purpose & Overview              11-9
    Also Form 8582-CR                           11-11
    Back to Part I, Form 8582                   11-12
    More on Part II                             11-13
    More on Part III                            11-15
    “Triggering” of Suspended Losses            11-17

12. FOREIGN ENTITY LLCs                         12-1

    Same Elective Options Apply                 12-2
    Effective Date & Relevance                  12-4
    Registering with Each State                 12-6
    Federal Form 1065 Revisited                 12-8
    Foreign Accounts Question                   12-9
    The Cross Hairs of Form 8865                12-12
    Schedule K-1: 1065 vs. 8865                 12-13
    Aliens:  Resident vs. Nonresident           12-15
    Withholding at Source                       12-16
    Nonresident Returns:  Form 1040NR           12-18