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Profits,Taxes,and LLCs (202)
Author: Holmes F. Crouch
Pages: 224
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  • Summary

    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"

    Table of Contents
    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

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