Tax choice of entity is a key procedure in any LLC formation, and with the enactment of IRC section 199A, all existing LLCs should revisit tax choice of entity. The new post by Lou Vlahos of FarrellFritz under the link below contains a short but excellent post about tax choice of entity and S corporations.
The attached case is required reading for anyone interested in Delaware Limited Liability Company Act forum section issues. It’s a very thoughtful opinion.
The post under the link below addresses the issue of which LLC members or managers may validly file a petition for their LLC’s bankruptcy. The broad lesson of the post is that LLC lawyers should make sure, in each operating agreement they draft for a multi-member LLC, that this issue is clearly resolved in the agreement.
The Richards Layton firm, a leading Delaware law firm, posted an article concerning recent amendments to Delaware’s LLC and limited partnership acts. The link is below.
The best source I know of for the case law on LLC appraisal processes is Peter Mahler’s Business Divorce blawg. In this post, Peter provides a brief but very information general discussion of the steps in this process. Here is the link to his post: https://www.nybusinessdivorce.com/2019/05/articles/dissenting-shareholder-apprais/how-to-initiate-a-fair-value-appraisal-proceeding-a-dissenters-checklist/
For those of you who (like me) follow Delaware Court of Chancery decisions about LLC issues, below is a link to a Shearman & Sterling post entitled “Delaware Chancery Court Finds Limited Liability Companies Can Be Liable For Advancement To Members, Even Under Delaware Corporate Law.”
Here’s the link:
Peter Mahler introduces the post below as follows:
“Half-Baked LLC Agreement Yields Improvised Valuation Decision”
By Peter Mahler
A rudimentary, “de facto” operating agreement with a cryptic withdrawal/buyout provision predictably set the stage for a unique valuation contest in the Delaware case highlighted in this week’s New York Business Divorce. Continue Reading…”
A basic question for section 199A experts is when a business should elect to be a C corporation rather than a pass-through business. Below in quotes are the title, a listing about the author, and the first couple of paragraphs of an article in Tax Notes about C corporations and the Accumulated Earning Tax.
Now I Am a C Corp: What About the Accumulated Earnings Tax?
Cory J. Stigile
In this article, Stigile provides background on the accumulated earnings tax and explains the steps corporate taxpayers may be able to take if the government begins to more actively audit and litigate the accumulation of profits.
The Tax Cuts and Jobs Act reduced the corporate tax rate from 35 percent to 21 percent, providing an additional significant incentive to conduct business through a corporation. Shareholders may be tempted to keep additional earnings in the corporation, rather than declare a dividend or pay compensation subject to an additional layer of tax at the individual level. The accumulated earnings tax (AET) and other code provisions discussed below may now play a bigger role in curbing excessive accumulation of profits and some types of passive income in corporations without the payment of dividends. There are several steps taxpayers may take to prepare should the government begin more actively auditing and litigating these issues.
Below is a citation for an excellent article about the treatment of losses under section 199A, in the latest issue of the ABA’s Tax Lawyer:
72 Tax Law. 401
American Bar Association Section of Taxation
Copyright © 2019 by American Bar Association; American Bar Association Section of Taxation
COMMENTS CONCERNING THE TREATMENT OF LOSSES AND CERTAIN OTHER ISSUES REGARDING THE SECTION 199A DEDUCTION
On June 27, I will presenting a webinar on the planning and drafting of operating agreements for single-member and multi-member LLCs. Topics include:
- Straight-up partnerships vs. special allocation partnerships
- Maximizing the asset protection function of operating agreements for your clients
- Fiduciary duties of LLC members and managers
- New Internal Revenue Code section 199A and its impact for LLC members
For more information and to register https://www.lorman.com/training/general-business/llc-operating-agreements-formation-draftings-and-provisions#overview.